I don’t think many Canadian investors realize just how powerful a wealth-creating tool the TFSA (Tax-Free Savings Account) can be. Sure, over the next year or so, the effects of tax-free compounding aren’t all that noticeable. However, over the course of 10, 15, or 20 years, the tax-free compounding could make a ton of difference, especially if you stash your smartest investment ideas into the account.
Indeed, many Canadians may just put cash in TFSA savings. Doing so, I believe, is not making optimal use of your TFSA, especially if you plan to retire more than 10 years down the line. If you’re a young investor, like a millennial, your TFSA should be in high-quality, blue-chip stocks.
Though you may wish to stash a bit of cash to buy on market dips and a few GICs (Guaranteed Investment Certificates) while rates are hovering around the 5% mark, I believe it’s tough to match the long-term rewards potential offered by stocks in almost any environment.
Undoubtedly, stocks are risky, and they’re volatile. But if you spot a great company with shares at a modest (or undervalued) multiple, I think the risk/reward tradeoff is good enough to help Canadian investors achieve their most ambitious retirement goals.
For now, new TFSA investors should stick with what they know best and reserve TFSA capital for what they deem as the biggest opportunities at any given time.
In this piece, we’ll look at two dirt-cheap Canadian stocks I’d be comfortable buying now and hanging onto for the next 15 years or more!
Restaurant Brands International
Restaurant Brands International (TSX: QSR) (or RBI for short) is a fast-food company that’s really heated up for the year, with 11.6% gains posted year to date. More recently, shares slipped by more than 4%, thanks in part to the release of decent second-quarter earnings results. Tim Hortons, one of RBI’s top brands, saw quarterly sales break a record. Indeed, they were very respectable numbers for the Canadian icon. The company also noted improved franchisee profitability.
As the company floors it on growth, with the expansion of brands (including Firehouse Subs), I find it will hard to keep QSR stock from a breakout. I think the recent slip is unwarranted and would look for new highs to be hit in a matter of months. The stock trades at 22.82 times trailing price to earnings, with a dividend yield just shy of 3%.
Fairfax Financial Holdings
Fairfax Financial Holdings (TSX: FFH) is one of Canada’s hottest new momentum stocks. Shares seem unstoppable right now, with the stock up nearly 40% year to date. In numerous prior pieces, I’ve praised the company’s top boss Prem Watsa and noted that shares were still cheap, despite doubling up many times over since the lows of 2020.
At $1,126 per share, I still find Fairfax stock to be undervalued at around one times price to book. Everything seems to be going right for a change for the insurance and investment holding firm. Eventually, FFH stock will pull back. But right now, I find few reasons for it to take a huge plunge lower. As such, I’m not afraid to nibble away at the stock for a long-term-focused TFSA.
At the end of the day, Watsa is the reason to own FFH stock at the core of a TFSA for 15 years at a time!
