A $7,000 TFSA Investment That Could Deliver Long-Term Growth

Fairfax Financial Holdings (TSX:FFH) looks primed for even more strong gains in the second half.

If you’re no longer happy with the measly interest produced by your TFSA (Tax-Free Savings Account) “high-interest” savings, it’s time to consider the opportunities in the equity markets. Indeed, things have calmed a bit since tariffs terrified most retail investors earlier in the year. And while valuations may be, on average, a bit pricier than just over a month ago, I still think there are undervalued, underappreciated opportunities out there for risk-averse investors who are optimistic but cautious over what the medium-term future holds for financial markets.

So, if you’re too heavy in TFSA cash and are looking for investment ideas for the next 18–24 months, the following play could be worth picking up right here. Enter shares of Fairfax Financial Holdings (TSX: FFH), a steady stock that has put the TSX Index and S&P 500 to absolute shame in recent years, clocking in multi-bagger gains in the past five years. For those unfamiliar with the $50.7 billion Canadian financial, it’s an insurance and holding company that’s led by a legendary value investor, Prem Watsa. Watsa, who’s also known by some as the Canadian Warren Buffett, has really shown he’s worth the title in recent years.

Lights glow in a cityscape at night.

Source: Getty Images

Fairfax stock: A massive gainer with runway!

The stock has blasted off close to 440% in the past five years. That’s absurd long-term momentum that, believe it or not, has started going parabolic a bit after the late-May breakout in the stock past the $2,300 per-share level. Indeed, shares of the Canadian icon seem long overdue for a stock split after moving from $350 and change to over $2,200 in less than five years! And though retail investors may not get a split as soon as they’d like, I do think that investors with unused TFSA contributions (sitting in cash) may wish to pick up a share today with the intent of buying another one or two on a pullback.

Since Berkshire Hathaway (NYSE: BRK.B) had its shareholder meeting just over a month ago, the talk of the town has been Warren Buffett’s year-end retirement. Indeed, the big question is whether Berkshire, a $1 trillion company, will be the same without its legendary CEO. It’s hard to tell whether it was Buffett or his supporting cast that’s been doing the heavier lifting of late. Either way, Fairfax may be the better bet for investors looking to ride on the coattails of a legend as Buffett finally passes the baton to Greg Abel (who, I might add, is from Alberta, Canada!).

Canada’s Warren Buffett is worth betting on

At the end of the day, Berkshire is a $1 trillion colossus that faces a tougher road to growth due to its size. Meanwhile, Fairfax is still quite small, with a market cap just north of $50 billion. And with a relatively young top boss in Watsa, I wouldn’t be surprised if Watsa and Fairfax prove a better long-term bet for TFSA investors.

Today, FFH stock looks incredibly cheap at 9.6 times trailing price-to-earnings (P/E). And, as I’ve described in prior pieces, FFH stock seems to be one of those rare stocks that keeps getting cheaper (at least on traditional valuation metrics) as it moves higher.

Fool contributor Joey Frenette has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

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