The TFSA (Tax-Free Savings Account) contribution limit increases yearly in line with inflation. In 2024, the TFSA balance increased to $7,000, up from $6,500 in 2023, bringing the maximum cumulative contribution room to $95,000.
Canadian investors should consider allocating a sizeable portion of their TFSA contribution limit to quality growth stocks that have the potential to generate outsized returns over time, as any qualified returns earned in the registered account are exempt from taxes.
Here are three top stocks you can buy with your $7,000 TFSA contribution room in 2024.
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Shopify stock
Valued at a market cap of $147 billion, Shopify (TSX:SHOP) is among the largest companies in Canada. The stock went public more than nine years back and has since returned 3,500% to shareholders. Despite its outsized gains, the TSX tech stock trades 47% below all-time highs, allowing you to buy the dip.
Shopify experienced significant revenue growth during the COVID-19 pandemic as companies were forced to establish an online presence amid lockdowns. While its top-line growth has decelerated in recent years, Shopify has focused on cost savings to shore up its profit margins.
In the last 12 months, Shopify has reported free cash flow of US$1.3 billion, up from US$905 billion in 2023. In Q2 024, Shopify increased sales by 25% year over year. Its gross profit grew faster than revenue while falling operating expenses allowed it to double the free cash flow margin to 16%.
Shopify continues to benefit from rising gross merchandise volume due to solid consumer spending patterns, enabling it to gain market share in the U.S. and internationally.
Air Canada stock
Airline stocks are cyclical and remain high-risk investments, especially during economic downturns. However, Air Canada (TSX:AC) is a top stock to own in October 2024 primarily due to its cheap valuation.
In the last 12 months, Air Canada has reported record revenue of $22.3 billion, an increase of 11% year over year. Despite record sales, Air Canada stock trades over 50% below all-time highs due to headwinds including inflation, rising fuel prices, and higher interest rates.
Air Canada and its peers were forced to increase balance sheet debt to stay afloat amid the pandemic. Its gross margins in the past year were around 32.2%, similar to 2019. However, its interest expense almost doubled to $839 million in this period.
The company reported free cash flow of $3.7 billion in 2019, falling to $2.3 billion in the past year. Valued at three times trailing free cash flow, Air Canada stock seems undervalued, given it still generates enough cash flow to lower debt and service its interest obligations.
Lassonde Industries stock
The final TFSA stock on my list is Lassonde Industries (TSX:LAS.A), a company that develops, produces, and markets a range of ready-to-drink fruit juices, drinks, and frozen juice concentrates.
With more than $2.3 billion in sales last year, Lassonde Industries is growing steadily despite sluggish consumer spending in 2024.
In the last decade, Lassonde stock has returned just 62% to shareholders, even after accounting for dividend reinvestments. Its underperformance suggests you can buy the TSX stock at a cheap valuation and benefit from outsized gains when market sentiment improves.
In addition to capital gains, investors can benefit from a steady stream of recurring income, given the stock offers you a forward dividend yield of 2.3%.
