The Tax-Free Savings Account (TFSA) is a truly powerful account for Canadians. Investors save as much as 15-25% of their annual investment income by simply investing inside the TFSA.
When all your gains and income are protected from tax, you can allow the power of compounded returns to turn a modest amount into something large.
In fact, the $7,000 TFSA contribution could become as much as $70,000 if you pick the right stocks and hold patiently. Here are a few examples of stocks that more than 10X’d their returns in the past few years.
A little-known industrial business that made investors rich
TerraVest Industries (TSX:TVK) has been one of the best-performing stocks in Canada. Most Canadians have never even heard of it. Since October 2019, its stock has risen 1,030%!
It would have effectively turned a $7,000 investment into more than $70,000 in less than six years. If you had bought it even earlier, say, like 10 years ago, you would be up 2,215%. Your $7,000 TFSA would be worth $157,000!
The interesting thing is that TerraVest is not a flashy growth stock on the surface. The company operates a mix of industrial manufacturing businesses. These are focused on specialized trailers and tanks, boilers/heaters, and water/energy services.
The key has been the company’s ability to deploy capital smartly. It can buy these mom-and-pop businesses at very attractive valuations. When TerraVest incorporates these businesses into its broader business, it can unlock synergies and profit growth.
TerraVest was not an easy find at the time. However, the company was executing extremely well, and it traded at only a high single-digit price-to-earnings ratio. Doing a little digging into this unknown company could have made substantial wealth for a TFSA investor.
A boring business could have 10X’d a TFSA holding
Hammond Power Solutions (TSX:HPS.A) is another under-the-radar stock that could have been a huge winner for TFSA investors. It 10X’d in a little over four years. Since December 2020, its stock is up 1,102%. Over a 10-year period, its stock is up 1,391%!
Like TerraVest, Hammond is not a flashy business. It manufactures specialized power transformers. The company’s products were perfectly suited to meet growing demand from the electrification of vehicles, rising power demand from data centres, and the global manufacturing boom.
Hammond was family-run until recently. The company steadily built its product portfolio and manufacturing capacity to become a leader in power transformer solutions.
With long-term growth tailwinds (data, electric vehicles, grid modernization), Hammond continues to be well-positioned. Tariff worries have impacted the stock, but it could continue to be an interesting buy at less than 17 times earnings.
A space stock that could launch your TFSA returns
A stock that could skyrocket your TFSA performance into the future is MDA Space (TSX:MDA). Its stock is up 53% this year and 217% in the past five years. Its business is a little more exciting than the two above.
It is a major manufacturer of high-tech satellite constellations, space components, and earth observation satellites. In the past few years, the company has won some significant contracts to put low-orbit satellites into space. Right now, it has a backlog of over $5 billion.
That is expected to help grow the business by a +20% rate for several years. With a price-to-earnings ratio of 28, it is not as cheap as the two stocks above were. However, the stock can be volatile and if you can pick it up on a dip, it could still deliver substantial returns ahead.
MDA has some big trends supporting its future growth. If it can continue to execute like it has, this stock could provide shareholders a 10X TFSA return over time.
