Turning $10,000 of TFSA (Tax-Free Savings Account) cash into $100,000 is certainly not an easy task. However, it also is not an impossible assignment.
Stocks that 10X come from a wide array of sectors and industries, not just those that are traditionally labelled growth (like technology stocks). As a result, investors need to take a shrewd eye on the entire market.
How to find 10X stocks for a TFSA
Stocks that 10X often have marquess characteristics to look out for. Firstly, they are often run by a founder or insiders with significant personal stakes in the business. You want managers that think and act like owners. Their incentives for success will be much more aligned than those that are not invested.
Secondly, you want companies that have a great mix of products or services, a strong defensive business moat, and large addressable markets.
Lastly, you want a business that is able to generate a lot of cash that can be reinvested into compounding and growing the earnings of a business. Reinvestment of earnings is a crucial point in a stock consistently rising.
Stocks tend to follow the success of a business. If you want your investments to soar, make sure the business has a long growth runway and a smart strategy to deliver that growth. Make sure to hold those stocks in a TFSA to minimize tax and maximize returns.
This industrial would have been a great TFSA buy
A great example of a stock that could have 10X’d in a TFSA is TFI International (TSX: TFII). It has delivered a 1,000% capital return in the past 12 years.
However, investors who collected its dividends and reinvested back into the stock would have a 1,482% total return on their investment. That means $10,000 would be worth $148,200 today!
TFI has a longstanding chief executive officer (CEO) who owns about $1 billion of stock. The company has turned into a shipping and logistics empire over the past decade. It has utilized a combination of low-cost operating expertise and clever industry consolidation to become a major player across North America.
The company still has an attractive long-term runway. TFI still has room for operational improvements, and it continues to make accretive acquisitions. The company generates a lot of excess cash to reinvest. It could still generate substantial gains for a TFSA holder ahead.
This stock 10X’d in three years
A really intriguing case study of a small-cap stock that could have multiplied TFSA wealth extremely fast is Hammond Power Solutions (TSX: HPS.A). Its stock is up 1,000% in the past 3.4 years! It started out with a market cap of $112 million in 2021. Today, it has a market cap of $1.34 billion.
Hammond is a manufacturer of high-quality power transformers and electrical components. It started out as a small family-run electrical manufacturing business.
Today, it has factories in Canada, the U.S., Mexico, and India. It has played perfectly into several major societal and economic trends, such as renewable energy, electric vehicles, data centres, artificial intelligence, and a rise in power demand.
Hammond’s former CEO (and now chairman) still owns about 30% of the company. While growth has recently slowed and its valuation has risen, this TFSA stock is still not well known and could see more upside.
The Foolish takeaway
When looking for 10X stocks for your TFSA, there are plenty of places to look. It can be an industrial like TFI or a small-cap stock like Hammond. The key is to find stocks in businesses that are executing well and able to grow significantly. All you need is one of these great quality stocks to see your TFSA significantly multiply!
