Equity markets are once again reeling under the pressure of bearish investor sentiment. The collapse of multiple banks south of the border is the primary reason for the stock market selloff this month. But as always, a pullback in equity valuations offers investors the chance to buy the dip and benefit from outsized gains once the market recovers.
Here, we’ll look at three such beaten-down stocks you can add to your TFSA (Tax-Free Savings Account) this week.
What is the TFSA and how does it work?
The TFSA is a registered account in Canada that was introduced back in 2009. This account can be used to hold a variety of investments, such as equities, bonds, mutual funds, and exchange-traded funds. Any withdrawals from the TFSA in the form of dividends, interests, and capital gains are exempt from Canada Revenue Agency taxes.
The maximum cumulative contribution room for the TFSA has increased to $88,000 in 2023, and just for this year, you can invest up to $6,500 in the account.
So, let’s see which three stocks you can add to your TFSA this week.
Toronto-Dominion Bank stock
The first stock on my list is Canada’s banking giant, Toronto-Dominion Bank (TSX:TD). Down 28% from all-time highs, TD Bank currently offers a tasty dividend yield of 4.8%, making the payout attractive for income-seeking investors.
The Canadian banking sector is heavily regulated, making it difficult for any new entrant to gain traction in these markets. But this has also resulted in a very stable banking environment in Canada.
During the financial crash of 2008, several banks in the U.S. cut or suspended dividends to maintain liquidity. But TD Bank and its peers in Canada continued to pay shareholders a regular dividend, showcasing the resiliency of their business model.
Armed with a well-capitalized balance sheet, TD Bank stock is currently priced at a discount of 35% to consensus price target estimates.
A company operating the e-commerce space, Etsy (NASDAQ:ETSY) is valued at a market cap of $13 billion. Down 65% from record highs, Etsy stock has trailed the broader markets by a wide margin since the start of 2022.
Etsy ended 2022 with gross merchandise sales of US$13.3 billion — much higher than the figure of US$5 billion it reported in 2019. While its sales have decelerated in the last year, the company has close to 100 million active buyers and 7.5 million active sellers on its platform.
Priced at 40 times forward earnings and 4.8 times forward sales, ETSY stock is trading at a premium. But analysts expect it to gain 30% in the next 12 months.
The final stock on my list is Shawcor (TSX:SCL). A small-cap material sciences company, Shawcor, is trading at a cheap valuation, given it ended 2022 with $1.25 billion in sales. Valued at $875 million by market cap the TSX stock has more than doubled in the last 12 months.
Shawcor’s order backlog increased by 22% year over year to $1.23 billion, providing investors with enough revenue visibility for the near term.
Similar to other companies, Shawcor aims to increase profitability amid a challenging macro environment. Analysts expect Shawcor to report adjusted earnings of $1.71 per share in 2023 compared to a loss of $0.43 per share in 2022.