TFSA Investors: 2 TSX Stocks for a Legit Shot at $1 Million in 20 Years

Undervalued TSX tech stocks such as Neighbourly Pharmacy can help investors to turn a $100,000 investment into $1 million in the next two decades.

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After trading at all-time highs in 2021, most equity indices entered bear market territory last year. Growth-focused indices, including the Nasdaq Composite, declined over 30% in 2022, as tech stocks fell off a cliff. It was the worst year for stock market investors since 2008.

Similar to taxes, bear markets are inevitable as economies are cyclical. Prior to 2021, investors enjoyed more than 10 years of inflation-beating returns, allowing them to build sizeable wealth in that period.

While the global economy remains sluggish amid elevated inflation levels, geopolitical tensions, and rising interest rates, the time is ripe for identifying undervalued stocks that can outpace the broader markets over time.

There are several quality companies trading at a discount, allowing you to grow your nest egg in the next two decades. Here are two such TSX stocks that can help you turn a $100,000 investment into $1 million over time.

Neighbourly Pharmacy stock

One of Canada’s fastest-growing network of community pharmacies, Neighbourly Pharmacy (TSX: NBLY), has a network of outlets located in underserved regions. So, it is subject to less competition while generating a majority of the top line from prescription sales.

There are about 6,500 independently owned pharmacies in Canada, allowing Neighbourly to grow its top line via highly accretive acquisitions in the next few years.

Neighbourly Pharmacy has increased its sales from $186 million in fiscal 2020 (ended in March) to $671 million in the last four quarters. Its sales are forecast to touch $954 million in fiscal 2024, while its profit margins are estimated to improve to adjusted earnings of $0.76 per share next fiscal compared to a loss of $2.57 per share in fiscal 2022.

So, NBLY stock is priced at one times forward sales and 29 times forward earnings, which is quite cheap. Back in 2014, Loblaw acquired Shoppers Drug Mart in a deal valued at $12.4 billion. If Neighbourly Pharmacy reaches this scale in the next 20 years, the stock will surge close to 1,300% from current levels.

Right now, NBLY stock is priced at a discount of 32%, given consensus price target estimates.

Softchoice stock

A software-focused IT solutions provider, Softchoice (TSX: SFTC) provides a wide range of cloud-based products and services to enterprises. The company ended 2022 with sales of $1.26 billion and 4,800 customers. It estimates the total addressable market at US$300 billion, providing Softchoice with enough room to expand its revenue in the next decade.

Softchoice’s revenue retention rate in 2022 stood at 106%, indicating existing customers increased spending on its platform by 6% in the last year. Its widening revenue base also allowed the company to report adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $82 million and free cash flow of $72 million last year.

So, SFTC stock is priced at 13.4 times trailing free cash flow and 0.8 times trailing sales, which is very cheap.

Moreover, its consistent profits allow Softchoice to pay investors annual dividends of $0.44 per share, translating to a dividend yield of 2.6%. Dividends have risen by 57% since December 2021 and can easily move higher, given the payout ratio is less than 30%.

Softchoice’s cheap valuation, expanding addressable market, widening margins, and attractive dividend profile make it a top bet for long-term growth investors.

SFTC stock is currently priced at a discount of 13.6% to consensus price target estimates. After accounting for dividends, total returns should be closer to 16% in the next 12 months.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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