Are you thinking about what to buy for your tax-free savings account (TFSA) next year? Are you still not taking full advantage of your TFSA limit? Well, read on as I will take a look at two Canadian growth stocks that are well-suited for your TFSA.
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CGI: Growth plus a dividend
CGI Inc. (TSX: GIB.A) is a leading global $36 billion IT and business consulting services firm. It has grown into this over the last many years, the result of its “build and buy” strategy. By combining organic growth and growth via acquisitions, CGI has been able to consolidate the very fragmented IT services industry, and come out bigger and better every year.
This has set the company up as a global leader, with growing revenue, margins, and profitability. In the company’s latest quarterly result (Q4/F’24), revenue increased 4.4% to $3.7 billion. Adjusted earnings before taxes (EBIT) increased 4.7% to $600.2 million, and the company’s EBIT margin came in at a very healthy 16.4%. Finally, net earnings excluding specific items came in at $439.1 million, up 4.2% and representing a net margin of 12%.
This earnings release embodies everything that CGI has stood for in the last many years – consistent revenue growth and increasing margins through greater scale and efficiency. While the company’s growth rate has been more subdued than some, years of consistent and disciplined growth have resulted in strong and steady long-term growth for this growth stock. As you can see from CGI’s price graph below, this has resulted in strong capital appreciation for the stock.
Lastly, I would like to mention the new dividend. After years of strong cash flows, CGI is finally ready to initiate a dividend. It’s small, but it’s a welcomed move and a clear indication of CGI’s strength. It’s important to note that this dividend does not change CGI’s acquisition strategy in order to consolidate the industry and grow. Acquisitions remain paramount to the company’s future and success.
Well Health Technologies: Just getting started
Well Health Technologies Corp. (TSX: WELL) has been on a journey of rapid growth and transformation. This has resulted in strong revenue growth, a growing presence and relevance, and finally, profitability.
Buying Well Health stock for your TFSA is a smart move in my view because what I think will be significant capital gains will be tax-sheltered. The reason for my bullish thesis is simple. Well Health is digitizing the healthcare system, and the need for this is so strong that the company continues to break records.
For example, in its latest quarter (Q3 2024), Well Health reported its 23rd consecutive quarter of record-breaking results. Revenue increased 27% to $251.7 million. Also, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 16% to $32.7 million, its best ever quarterly EBITDA. Finally, the company hit an annual revenue run-rate of $1 billion sooner than expected and increased its guidance once again. As you can see from the graph below, Well Health’s stock price is increasingly reflecting this momentum and potential.
Looking ahead, we can expect increasing cash flows and profitability as demand for the company’s digitization tools remains elevated. This will be used for debt reduction and to continue to grow the business. The company’s long-term goal is to capture $4 billion in revenue, which is 10 times the current level and would still only be a mere 5% market share.
The bottom line
Adding these growth stocks to a tax-free savings account is a great idea because the greater the upside, the more the tax savings. And in my view, there’s still a lot of upside to be had in both CGI’s and Well Health’s stock price.
