There’s no question that the Tax-Free Savings Account (TFSA) is one of the best tools that Canadians have to invest their capital for the long haul. Plus, because of its tax-free nature, the best stocks to buy for the TFSA are high-quality companies with significant growth potential, especially when you can buy them undervalued.
When you buy a stock that’s undervalued but also has years of growth potential, the returns you can make are astronomical. And the higher your potential returns, the more money you’ll save on taxes by owning these stocks within your TFSA.
So, with that in mind, if you’ve got cash on the sidelines, here are two undervalued stocks to buy now before prices pick back up.
A top small-cap growth stock to buy now
Ever since the pandemic began to wind down, WELL Health Technologies (TSX:WELL) has been out of favour. However, although it’s been out of favour for years now, WELL continues to execute and grow rapidly, making it one of the best stocks to buy for your TFSA while still undervalued.
Earlier this month, WELL reported strong first-quarter earnings that exceeded expectations, continuing a trend that has lasted for more than four years now. Plus, in addition to the beat, WELL also raised its fiscal 2024 guidance for revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
Analysts now estimate that for fiscal 2024, WELL will generate sales of roughly $970 million, a 25% increase year over year. Furthermore, and arguably more importantly, though, analysts are estimating its normalized earnings per share (EPS) will increase roughly 38% year over year as WELL continues to improve its margins.
This is significant because, in addition to consistently growing its revenue at an impressive pace, WELL has also demonstrated its ability to generate profits. And although the stock has been undervalued for years on a price-to-sales (P/S) basis, it’s now becoming ultra-cheap from a price-to-earnings (P/E) basis, making it much harder for the market to ignore as the perfect stock to buy for your TFSA today.
In fact, right now, WELL trades at just 12.8 times its expected earnings in 2024, which is unbelievably cheap for such an impressive and consistent growth stock. Furthermore, with analysts estimating another 20% growth in its normalized EPS in fiscal 2025, WELL is trading at just 10.7 times its expected earnings next year.
The business continues to grow, and profitability continues to improve, yet the share price has hardly recovered for more than a year now, and in the last few months, it’s hardly budged.
Therefore, it’s only a matter of time before WELL returns to favour. So while you can buy this high-quality growth stock undervalued, it’s certainly one of the best investments to consider for your TFSA today.
An undervalued retail stock to buy in your TFSA
In addition to WELL, Aritzia (TSX:ATZ) is another impressive stock with significant long-term growth potential that’s temporarily trading cheaply and offering investors a major opportunity.
As a retailer of discretionary goods, it’s not surprising to see both its share price and operations take a hit in recent quarters as the uncertainty of the economy and surging costs of living impact how and where consumers spend their money.
However, while there is still uncertainty in the economy, the worst looks to be over for Aritzia. Not to mention, the stock is unbelievably cheap today and expected to grow rapidly over the coming years, making it ideal to buy for your TFSA while it’s still undervalued.
Right now, analysts estimate that in Aritzia’s fiscal 2025 (which already began in March), the stock will earn normalized EPS of $1.78. Furthermore, those same analysts estimate that next year (fiscal 2026), Aritzia will see another 32.3% bump in its normalized EPS to $2.35.
That gives it a forward P/E ratio of just 18.3 times today and 13.9 times its earnings next year. That’s much cheaper than Aritzia’s average forward P/E ratio over the last five years, roughly 36.3 times.
Therefore, while you can still buy Artizia undervalued, there’s no question it’s one of the best stocks to add to your TFSA because right now, not only is it cheap, but it continues to have a years-long runway of growth.
