The TFSA (Tax-Free Savings Account) contribution limit for 2023 increased to $6,500, raising the maximum cumulative contribution room to $88,000. As any returns generated in a TFSA are exempt from taxes, it is an ideal account to hold quality stocks that have the potential to derive outsized gains for investors.
Here are three top TSX stocks Canadian investors can consider buying in 2023.
EQB stock
EQB (TSX: EQB) offers personal and commercial banking services to retail and commercial customers in Canada. Its portfolio of products includes equipment loans, mortgage loans, commercial equity lines of credit, and construction loans, among others.
Due to a tepid lending environment driven by rising interest rates, shares of EQB are down 30% from all-time highs. Despite the ongoing meltdown in the equity markets, EQB stock has returned 258% to shareholders in dividend-adjusted gains since April 2013.
EQB stock is priced at a discount as the company is forecast to increase sales by 34.5% to $987 million and earnings by 14% to $10.45 per share in 2023. So, the TSX stock is valued at 2.2 times forward sales and 5.6 times forward earnings, which is very cheap.
EQB also pays investors annual dividends of $1.40 per share, indicating a forward yield of 2.4%. These payouts have risen at an annual rate of 13.8% since 2004, which is quite exceptional for a cyclical company.
EQB stock is currently trading at a discount of 44%, given consensus price target estimates.
Cathedral Energy Services stock
Valued at a market cap of $225 million, Cathedral Energy Services (TSX:CET) has grossly underperformed the broader indices as a publicly listed company. Shares of CET were listed on the TSX in December 2009 and have since fallen by 78%.
Cathedral Energy Services offers directional drilling, remote drilling, motor rentals, and drilling optimization services to oil and gas companies in North America.
In the last 18 months, Cathedral Energy acquired seven companies, establishing itself as one of the largest directional drilling contractors on the continent. These acquisitions are expected to increase the company’s top line by 382% to $301.5 million in 2022, while adjusted earnings are forecast at $0.13 per share.
Further, revenue is estimated to touch $550 million in 2023 with adjusted earnings of $0.31 per share. So, the TSX stock is priced at 0.5 times forward sales and 3.3 times forward earnings, which is very cheap.
CET stock is currently trading at a discount of 150% to consensus price target estimates.
Sun Life Financial stock
The final stock on my list is Sun Life Financial (TSX: SLF), a dividend-paying giant valued at a market cap of $38 billion. A well-diversified financial services company, Sun Life provides a wide range of savings, pension, and retirement products globally, in addition to asset management and insurance solutions.
In the last two decades, SLF stock has returned 371% to shareholders after adjusting for dividends. Comparatively, the TSX index has returned 458% to investors in this period.
Currently trading at 10 times forward earnings, SLF stock is attractively valued, given it also offers shareholders a tasty dividend yield of 4.6%. Since April 2003, these payouts have risen by 7.5% annually.
