Even though market corrections are painful, they tend to create the biggest no-brainer investment opportunities. With the TSX Index dipping 2% yesterday alone, many individual stocks are down significantly more in the past few weeks.
Add to your TFSA when the market draws down
These general market pullbacks can create opportunities for shrewd investors. When the market falls, it grabs and pulls down both good and bad stocks with it. That can present opportunities to build positions in great businesses at attractive valuations.
The best place to buy these quality businesses is inside the Tax-Free Savings Account (TFSA). You don’t want to pay taxes on big potential gainers.
The TFSA protects you from that. With the TFSA contribution limit increasing by $7,000 in 2024, Canadian investors have an opportunity to top up their accounts. Here are two temporarily beaten-down stocks to buy with that contribution space.
A misunderstood and undervalued small-cap stock
Most Canadians are not familiar with Canadian small-cap stock, Calian Group (TSX: CGY). It operates a mix of essential “behind-the-scenes” businesses in cybersecurity and info tech, healthcare, satellite, nuclear, and training/simulation. Some of its biggest customers include the Canadian military and NATO.
Over the past five years, Calian has compounded revenues and earnings before interest, tax, depreciation, and amortization (EBITDA) by 18% and 23%, respectively. It had a couple of misses last year, so the market has been hesitant.
Yet, it has been delivering solid results in 2024. For its first fiscal six months, revenue, adjusted EBITDA and operating cash flow are up 20%, 45%, and 40%, respectively. The company is growing organically, but it has also made some good acquisitions that expand its service, geographic, and margin profile.
Given its growth profile, Calian stock looks quite attractive today. It trades for 11 times forward earnings and 13 times free cash flows. It also pays a decent 2% dividend yield, so there is some income to be had as well.
A growth stock hitting a bump in the road
Another stock to consider adding to a TFSA right now is TFI International (TSX: TFII). This is a case of a really good business in a really tough industry.
TFI is one of the largest trucking, logistics, and shipping businesses in Canada. It also has a growing presence in the United States. North America has been experiencing a freight recession, so even the top transporters are getting hit.
The good news is that TFI continues to generate strong free cash flow. TFI is using the downturn to reduce its cost structure, focus on network efficiencies, and improve service. Consequently, it is incrementally taking market share.
TFI has a lot to like in a long-term investment holding. First, it has a long-term chief executive officer who is a major shareholder. Second, its cost-conscious approach helps it earn high returns on capital. Third, it has a history of growing its dividend and also buying back stock when it is trading cheaply.
TFI trades for 18 times earnings and 13 times free cash flow. While it is not “cheap,” the company has several catalysts to unlock value. That could include divestments, amalgamations, or spinouts. Regardless, it’s a well-managed business worthy of a long-term TFSA buy-and-hold strategy.
