Since the money you make in your Tax-Free Savings Account (TFSA) is tax free, you want to target high returns with stocks that can transform your retirement. Here are a couple of top growth stocks that have strong long-term returns potential.
Brookfield stock
Brookfield (TSX:BN) has climbed about 13% in the last month. If you investigate the company’s earnings history, you’ll notice that it’s a cyclical stock. Although the stock has just gone up meaningfully, it likely has more room to run, especially for the long haul. At the recent quotation of $46.91 per share, it’s still 24% below its peak in 2021. It is a good time to buy the stock for long-term investment when it’s down meaningfully, as it is now.
Brookfield is a diversified business that’s growing its profits in the long run. It has its capital deployed across three businesses: asset management, insurance solutions, and its operating businesses with real assets across renewable power and transition, infrastructure, private equity, real estate, and asset management. As a value investor, other than paying reasonable or discounted valuations on quality assets, it also opportunistically buy back its shares when they’re cheap.
Analysts currently think the undervalued stock trades at a good discount of about 27%. It only yields about 0.8%. However, it’s set to increase its dividend over time. For your reference, its 10-year dividend-growth rate is 8.6%. Besides, investors should focus on price appreciation in this growth stock.
goeasy stock
Like Brookfield stock, the stock of leading non-prime Canadian lender, goeasy (TSX:GSY), is also turning around. The financial services stock has already climbed 38% from its low this year. However, you don’t necessarily need to capture the low to make excellent returns from the stock. For example, in the last five years, with dividend reinvestment, investors saw total returns at a compound annual growth rate of about 25%. The last 10-year returns were about 30% per year. In other words, it greatly beat the market in both periods.
Analysts think goeasy stock remains undervalued today with a meaningful discount of about 23% at the recent quotation of $124.17 per share. Other than having good upside potential, it also offers a dividend yield of 3.1%. For your reference, its 15-year dividend-growth rate is 18.6%.
Since mid-2022, goeasy stock has been working in a wide range between about $95 and $130 per share. If it breaks out successfully above $130, it could potentially hit its 12-month price target of about $162.
Notably, the Government of Canada intends to reduce the maximum allowable rate of interest to the annual percentage rate of 35%. This change will have more of an impact on smaller peers versus larger players like goeasy, which has been reducing the interest rate over time for its lenders, particularly those who have been diligent on their debt repayments. The goeasy management predicts little change for its forecast through 2025. Therefore, it’s possible for the stock to continue to experience double-digit adjusted earnings-per-share growth through this period.
If all goes well, through 2025, investors could average total returns at a compound annual growth rate of approximately 27% between the two growth stocks. However, investors must bear the volatility in between.
