Young investors should take charge with their TFSAs (Tax-Free Savings Accounts) by pursuing fundamentally sound companies while they’re going for modest multiples. Undoubtedly, the Canadian stock market certainly seems a whole lot cheaper than the S&P 500 or the tech-heavy Nasdaq 100. Though only time will tell if the TSX Index can outdo the U.S. indices, I think that there are plenty of reasons for young investors to stick with Canadian growth companies this November.
First, the Canadian dollar is in a tough spot versus the greenback. Undoubtedly, with the loonie hovering around US$0.72, those who make the swap likely won’t have as much bang for their buck. As the Bank of Canada looks to cut interest rates perhaps a tad more aggressively than the U.S. Federal Reserve (the Fed) in the new year, perhaps the loonie could lose even more ground versus the U.S. dollar. In any case, I think that TFSA investors offput by the exchange rate can do well on this side of the border. Of course, there aren’t as many exciting growth companies on the TSX.
However, I think that one’s dollar can go further as concerns about valuation, the economy, and corporate earnings take hold. But where’s a beginning investor to get started? Stick with simple, easy-to-understand businesses that are trading at relatively modest multiples. Of course, a bit of share price momentum isn’t a red flag either, especially if the fundamental picture stands to improve going into the new year.
Without further ado, here are two top TFSA starter stocks to check out right here.
IA Financial
IA Financial (TSX:IAG) is a Canadian insurance firm that’s quietly soared to hit new all-time highs this year. Undoubtedly, the 29% year-to-date gain is impressive, but despite the momentum, I still view the name as quite cheap at 15.4 times trailing price to earnings (P/E).
Sure, IA Financial isn’t the largest Canadian insurer, with a market cap just shy of $11 billion. However, I do like its steady growth trajectory and its track record of returning capital into shareholders’ pockets. The 2.86% dividend yield is still rich and likely to grow steadily through the next decade.
Of late, the company has made smart acquisitions and investments, which could act as a nice driver of earnings growth. With a smaller market cap and a long growth runway, I’d not sleep on the name. It’s an underrated financial worth hanging onto for years at a time.
National Bank of Canada
National Bank of Canada (TSX:NA) is the number-six Canadian bank that has also been standing tall compared to its larger peers. At close to $133 per share, NA stock is close to a new all-time high. And while I’m not a huge fan of chasing top performers, I can’t help but notice how soundly the firm has been navigating a rather sluggish environment.
Further, the stock’s still cheap at 12.93 times trailing P/E, with a 3.32% dividend yield. I think it’s about time that investors gave the relatively smaller $45 billion bank the benefit of the doubt. Unlike its peers, National Bank has plenty of room to expand in the Canadian market.
As the former regional banking star continues to expand its presence into other provinces, I think we’ll eventually start viewing the name as a robust national bank, just like its five larger peers.
