The TFSA (Tax-Free Savings Account) is an exceptional place to hold stocks for the long term. Why? You don’t pay any tax on your realized returns.
If you are looking for stocks that could 10X or 20X your capital, you want them to be in your TFSA. You don’t want to pay tax on those big gains. If you are looking for some forever stocks for a TFSA, here are five quick ideas.
A long-term TFSA growth stock
Constellation Software (TSX: CSU) has been one of the best-performing TSX stocks over the past decade. Its stock is up nearly 1,500% (31% compound annual growth rate, or CAGR). Given its enterprise value of $63 billion, it is unlikely to replicate a similar growth rate.
However, even if its return profile were to decline to 15-20% per year, shareholders could still do extremely well. A 15% average annual return would result in the stock doubling in five years. That is still a very good return.
Constellation is a machine at acquiring often small, niche software businesses. It has an extremely thoughtful management group that has keyed in a formula for compounding capital at high rates of return. For that, it is a great TFSA stock to buy and hold for many years to come.
A niche consolidator
TFI International (TSX: TFII) is another TFSA stock that has grown through a successful acquisition strategy. With a market cap of $14.6 billion, it has become one of the largest freight and logistics transporters in Canada and the United States. It has made over 100 acquisitions.
It has a very efficient operating platform that helps unlock outsized profits from a generally low-margin business. TFI stock is up 677% over the decade (or 22.6% CAGR). A major competitor just went bankrupt, so the company should enjoy opportunities to take market share in the years ahead.
More than a century of growth
Canadian Pacific Kansas City Railway (TSX: CP) has been operating since 1881. That just speaks to how crucial its rail network is in North America. There are no other options for efficiently transporting tonnes of bulk goods across this large continent.
Given its crucial network, CP has a strong competitive moat and great long-term pricing power. After acquiring Kansas City Southern, it operates the only single rail line that extends between Canada, the U.S., and Mexico.
CP stock is up 283% (14% CAGR) over the decade. Management believes it can more than double earnings over the next five years. That suggests further outsized growth to come.
Two small caps with huge TFSA potential
Two smaller cap stocks with exceptional potential for long-term TFSA returns are TerraVest (TSX: TVK) and Hammond Power Solutions (TSX: HPS.A).
TerraVest only has a market cap of $663 million. It consolidates niche manufacturing businesses that have a focus on energy infrastructure, transport, and heating/cooling equipment.
TerraVest buys these businesses at very cheap valuations and uses operational expertise to turn them into cash cows. It takes the proceeds and invests in more businesses. This stock is up 782% (24% CAGR) over the past 10 years, but it continues to have a large growth runway.
Hammond provides specialized power transformers and electric equipment for utilities, manufacturing plants, data centres, and even electric charging stations. All these segments are seeing huge growth from trends such as digitization, electrification, and decarbonization.
Hammond stock is up 623% (21% CAGR) over the past 10 years. It only has a market cap of $622 million and trades with a price-to-earnings ratio of 10. Not only is it a bargain, but it could still propel significant growth in your TFSA.
