Your TFSA (Tax-Free Savings Account) should not be used for trading, timing the market, chasing hot trends, speculating, or pursuing quick gains. What it’s meant for is sound investing, preferably over a long-term time horizon.
Undoubtedly, you could get into a bit of trouble if you’re too active with trading in your TFSA. It’s a means to accomplish your long-term goals, not some sort of account to help you gamble on speculative names that could get you rich quickly. Such names may also make you lose money quickly, and unlike losses realized in non-registered (not the TFSA, Registered Retirement Savings Plan, etc.) accounts, you can’t use the losses to offset gains elsewhere.
TFSA investors: Pick a strategy that’s long term in nature
One strategy I like to use with my TFSA is “set and forget.” You buy shares of a firm that you would love to hold for 10 years or more, nab it at a reasonable (or undervalued) price, and simply hang onto your investment. Of course, a lot of homework needs to be done before you even think about buying a stock for your TFSA.
You’ve got to determine if potential disruptors will erode an economic moat over time. It can also pay dividends to think about risks on and off the radar of everybody right now. Finally, it’s a good idea to conduct a discounted cash flow (DCF) analysis. If financial models aren’t your thing, though, you should insist on getting good value for your money. Whether that means buying a stock at a historical discount or one that’s cheaper than its comparable rivals, one must always treat buying stocks like buying anything else.
If you wouldn’t buy a $2,500 flatscreen TV without doing a bit of homework, you shouldn’t be willing to invest $2,500 in stocks without putting in the due diligence. Otherwise, you could stand to lose money. And, as you may know, you’d be breaking one of Warren Buffett’s top rules: never lose money!
Consider the following unloved stocks as potential TFSA top picks. I view both as unloved and potentially undervalued.
TFI International
TFI International (TSX:TFII) is a transportation company that moves goods from A to B via LTL (less-than-load) trucks.
It’s a simple business, but one that’s been very bountiful for TFI over the years. In the past, it had its operational snags. But these wrinkles have been flattened out such that TFI is now a pretty smoothly run firm. As TFI encounters a recession, earnings could face increased bumps in the road. That’s really to be expected. And I do think a lot of the disruption is already baked in.
The stock is down around 19% from its recent all-time high hit earlier this year. At 12 times trailing price to earnings, TFI looks like a great value for money. Sure, earnings will face due pressure, but the firm can and probably will land on its feet and bounce back in the post-recession economy.
Aritzia
Aritzia (TSX:ATZ) is more than just a clothing company, it’s a fashionable growth play that could unlock next-level growth outside of the Canadian market. In the meantime, the stock is under pressure, even though sales have been relatively resilient given the macro picture.
Longer term, I think Aritzia has sales (and margin) growth in the tank. But until the stock can rally to new heights, I think we need to get this recession over with. Clothing is a discretionary item, not a necessity. That makes it more sensitive to recessions. Buy when pessimism is at a high point, and you could maximize your returns once the tides finally do turn.
The $3.24 billion company has great managers running the show. That alone makes me bullish on the firm’s future, even as its stock continues to sink lower by the week.
