Investors should consider leveraging the benefits of the TFSA (Tax-Free Savings Account) to generate outsized gains over time. As any returns earned in the TFSA from qualified investments are exempt from taxes, the account is ideal for buying and holding undervalued growth stocks.
So, here’s a smart way to allocate $21,000 across your TFSA investments in 2025.
Is this Canadian mining stock undervalued?
Valued at a market cap of $544 million, Rio2 Limited (TSXV:RIO) is a Canada-based mining company. The small-cap stock has surged more than 160% in the last 12 months, easily outpacing the broader markets.
Rio2 is developing the Fenix Gold Project in Chile’s Maricunga Gold Belt, positioning itself to become a significant gold producer. The project represents the largest permitted and fully financed gold heap leach operation in the Americas, featuring 4.8 million ounces of measured and indicated resources.
The Fenix Gold mine will operate as a staged development, beginning with 20,000 tonnes per day processing capacity in stage one, expandable to 80,000 tpd in stage two. The 2023 Feasibility Study projects average annual production of 82,000 ounces over a 17-year mine life, with total recoverable gold of 1.32 million ounces. Operating costs are estimated at US$1,237 per ounce AISC (all-in sustaining costs), with initial capital requirements of US$116.6 million.
Rio2 has secured comprehensive financing through Wheaton Precious Metals, including a $50 million gold stream, a $100 million flexible prepay arrangement, and a $20 million standby loan facility.
Total project funding of $174 million ensures construction completion with minimal shareholder dilution. The project benefits from 100% oxide mineralization, simple heap leach metallurgy, and a low strip ratio of 0.85.
Located near major infrastructure with trucked water supply from Copiapó, the project bypasses complex permitting delays. Future expansion options include desalinated water sources and significant exploration upside within the existing footprint.
Construction is currently underway, with production expected to commence following the receipt of final permit approvals. The project positions Rio2 as a low-cost gold producer in a tier-one mining jurisdiction.
While currently pre-revenue, Rio2 is forecast to end 2027 with revenue of $408 million, with adjusted earnings per share of $0.49. It is also forecast to report a free cash flow of $113.5 million in 2027.
Priced at 2.5 times forward earnings and less than five times forward free cash flow, the mining stock is quite affordable.
Is this TSX stock a good buy?
STEP Energy Services (TSX:STEP) is another stock TFSA holders can consider owning right now. It delivered a strong performance in the first quarter (Q1), reporting consolidated revenues of $308 million, a recovery from the prior quarter’s revenue of $148 million.
It generated adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $59 million with a 19% margin, alongside positive free cash flow of $32 million, demonstrating operational resilience after commodity price-induced challenges in 2024.
STEP terminated its U.S. fracturing division and consolidated into one operating segment, streamlining operations and focusing on core Canadian and remaining U.S. markets.
The company introduced Canada’s first 100% natural gas-powered fracturing pump (NGx), achieving up to 90% diesel displacement during field trials. This 3,600-horsepower engine delivers twice the pumping capacity of conventional units while reducing operational costs and environmental impact.
STEP operates 22 coiled tubing units with strong client relationships in the Montney, Duvernay, Bakken, Permian, and Eagle Ford basins. The fracturing division ran seven crews in Q1, pumping a record 787,000 metric tons of sand in Canada, with the company handling 60% of clients’ sand hauling logistics.
Management expects Q2 seasonal slowdown with momentum building toward Q3. Activity levels should match 2024 performance, although oil price weakness below US$60 per barrel and retaliatory tariffs pose challenges.
STEP is forecast to increase earnings from $0.04 per share in 2024 to $1.04 per share in 2027. Priced at just four times forward earnings, the TSX stock is cheap and should be part of your TFSA watchlist in 2025.
In addition to STEP and Rio2, Investors should identify other undervalued growth stocks and diversify their TFSA portfolio, which lowers overall risk.
