The maximum TFSA (Tax-Free Savings Account) contribution limit for 2024 has increased to $7,000 due to elevated inflation levels, taking the cumulative contribution room to $95,000. Given the equity markets are expected to remain volatile due to a sluggish macro environment in the near term, it makes sense to add quality beaten-down stocks to your portfolio right now.
The TFSA is a flexible, registered account that can be used to buy and hold growth and dividend stocks, as any returns in the form of capital gains or dividends are sheltered from Canada Revenue Agency taxes.
Here are two cheap TSX stocks TFSA investors can buy in 2024 and benefit from outsized gains over time.
Toronto-Dominion Bank stock
Down 25% from all-time highs, Toronto-Dominion Bank (TSX:TD) currently offers you a dividend yield of 4.7%. Its diversified product mix allowed TD Bank to perform well amid a challenging economic backdrop. In the fiscal third quarter (Q3) of 2023 (ended in July), TD reported adjusted earnings of $3.7 billion, down 2% year over year.
Net income for TD’s Canadian personal and commercial banking segment fell 1% to $1.65 billion, primarily due to higher provisions for credit losses. Comparatively, volume growth and higher margins allowed TD to increase revenue by 7% to $4.57 billion in this segment.
Further, TD’s entrenched position in Canada allowed it to benefit from strong account openings and expand its credit card customer base.
TD Bank also ended Q3 with a common tier-one capital ratio (CET1) of 15.2%, which is the highest among North American banks. The CET1 ratio compares a bank’s capital with its assets and provides insights into its ability to navigate economic downturns, and a higher CET1 ratio is favourable.
Priced at 10 times forward earnings, TD Bank stock is quite cheap, given its high dividend yield and earnings growth estimates. In the last 27 years, TD Bank has raised dividends by more than 10% annually, showcasing the resiliency of its business model.
The TSX stock also trades at a discount of 12% to consensus price target estimates.
GFL Environmental stock
One TSX stock I’m very bullish on is GFL Environmental (TSX:GFL). Valued at almost $15 billion by market cap, GFL is part of a recession-resistant sector offering non-hazardous solid waste management and environmental services in Canada and the U.S.
In Q3 of 2023, GFL saw its revenue grow by 10.3% year over year, excluding non-core asset divestitures. The uptick in sales was driven by core pricing increases in the solid waste vertical, indicating the company enjoys pricing power.
GFL completed divestitures of certain non-core assets in Q2 and reinvested a portion of these proceeds in higher-margin growth projects. According to GFL, its base business has now scaled to a point where GFL expects organic growth to outpace growth from mergers and acquisitions.
GFL is part of a capital-intensive sector and ended Q3 with $9.3 billion in debt, which might make investors nervous due to rising interest rates. But GFL reduced its borrowing costs by 60 basis points under its senior secured term loan and aims to deleverage its balance sheet to enhance its overall liquidity position.
Priced at 32.5 times forward earnings, GFL stock trades at a discount of 25% to consensus price target estimates.
