Are you looking for high quality stocks to add to your tax-free savings account (TFSA) for tax-free gains?
If so, the Canadian markets offer plenty of options to choose from. While U.S. markets have risen to nosebleed highs thanks to artificial intelligence (AI) investments with uncertain payoffs, the Canadian markets remain relatively inexpensive. This makes the TSX Composite Index a great place to look for bargain stocks with significant future potential. In this article, I’ll explore two TSX stocks that could provide considerable tax-free gains if held in a TFSA.
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Brookfield
Brookfield Corp (TSX:BN) is one of Canada’s most globally esteemed companies. It invests with and/or provides services to partners ranging from U.S. tech companies to oil-rich Middle Eastern countries. Major investors trust Brookfield to invest money for them, because the company is thought to run a very tight ship. Over the years, the company has compounded its investors’ wealth at about 16% annualized.
Brookfield did a lot of growing in the past. Why is it worth mentioning today? Put simply, because its compounding track record does not appear to be anywhere near over. In the last 12 months alone, the company and its subsidiaries achieved the following feats:
- Scored the biggest renewable energy deal in history, supplying 10.5 gigawatts of power to Microsoft.
- Raised over a billion dollars for new funds.
- Inked a deal to manage money for Qatar.
- And so much more.
Brookfield is still doing all the things that made it successful in the first place. And, the stock is fairly cheap, trading at 0.75 times sales and 12.4 times the best estimate of next year’s earnings. The company’s most recent earnings release beat expectations. Finally, Brookfield has an ongoing buyback program that gradually returns wealth to shareholders.
CN Railway
The Canadian National Railway (TSX:CNR) is Canada’s biggest railroad company. It is economically indispensable, transporting $250 billion worth of goods across Canada and the U.S. each year. These goods include grain, crude oil, cars and timber. Without CN Railway, North America’s supply of these goods would be severely disrupted. The company has only one major competitor in Canada, and only a few competitors in the United States. The continent depends on CN Railway for its economy to run smoothly.
CN Railway ran into some hiccups in the last year. In 2023, the company’s revenue declined, possibly because a fall in oil prices after the 2022 rally led to lesser demand for crude-by-rail. On the flipside, CN Railway’s revenue growth swung positive in the most recent quarter (it grew 6.7%).
To be completely honest, I’d like to see CN Railway a little cheaper before buying it. The stock trades at about 21 times earnings, I’d buy it at 15. It’s not a name I’m going to plunk money into any time soon, but over a very long period of time, it should do okay.
Foolish takeaway
When investing your TFSA money, it pays to invest in quality companies. Companies that are well run, that have stood the test of time. Such an approach isn’t risk-free, but it’s better than what many investors are attempting.
