The TFSA (tax-free savings account) allows investors to earn tax-free returns on a specified amount called contribution room. For this year, the CRA (Canada Revenue Agency) has set the contribution room at $7,000, while the cumulative limit for a person 18 and above in 2009 would be $95,000. So, investors should look to add quality growth stocks to their TFSA to earn oversized returns in the long run. Here are my two top picks.
Celestica
Celestica (TSX: CLS) offers design, manufacturing, hardware platform, and supply chain solutions to a broad customer base covering different sectors. It utilizes its global expertise to provide insights at every stage of product development. Given its solid first-quarter performances and exposure to high-growth sectors, such as electronics manufacturing services and artificial intelligence, the company has delivered impressive returns of 109% this year.
In the March-ending quarter, the company posted revenue of $2.2 billion, representing a 20% increase from the previous year’s quarter. It also beat management’s guidance. Its CCS (Connectivity & Cloud Solutions) segment reported year-over-year growth of 38%, which overcame the decline of 3% in its ATS (Advanced Technology Solutions) segment to drive its revenue growth. Along with sales growth, the expansion of gross margin and lower SG&A (selling, general, and administrative) and finance expenses drove its adjusted EPS (earnings per share), which rose by 83%.
Meanwhile, Celestic’s upward momentum could continue as the expansion of artificial intelligence and machine learning usage has increased the demand for high-speed computing switches, thus expanding its addressable market. The company also continues developing advanced products to meet customer needs and strengthen its footprint. Considering all these factors, I believe its growth prospects look healthy.
Although Celestics’s stock price has more than doubled this year, it still looks attractive. The company trades at an NTM (next 12 months) price-to-earnings multiple of 17.7, making it an excellent long-term buy.
WELL Health Technologies
The second growth stock I am bullish on is WELL Health Technologies (TSX: WELL), which offers products and services to aid healthcare professionals in delivering positive outcomes. It had reported an impressive first-quarter performance earlier this month, with its revenue growing by 37%. Along with organic growth of 13%, its acquisitions over the last four quarters drove its sales. The digital health solutions provider had 1.3 million patient visits during the quarter, representing a 34% increase from the previous year’s quarter.
Meanwhile, the company’s gross margin declined from 50.9% to 44.1% amid the acquisition of lower-margin businesses over the last four quarters. However, its adjusted net income increased by 43.3% to $20.2 million.
Clinics are digitizing clinical procedures and adopting administrative tools to streamline their operations, thus expanding the addressable market for WELL Health. Besides, the growing adoption of virtual healthcare services has created multi-year growth potential for the company. Meanwhile, the company is investing in artificial intelligence to enhance its product and service offerings. Also, its continued acquisitions could boost its financials in the coming quarters.
Despite its healthy growth prospects, WELL Health has been under pressure over the last 12 months amid an uncertain macro environment. The correction has dragged its NTM price-to-earnings multiple down to 13, making it an attractive buy.
