2025 is wrapping up, and it’s time to start thinking about how to structure your portfolio for 2026. The TSX has performed admirably, with the Index up over 27%. Yet many stocks have underperformed this year. Several high-quality companies are down on the year.
This creates opportunities for shrewd investors. While these stocks may have underperformed, their businesses continue to generate great results. Patient long-term investors can pick up these stocks at better valuations (which also means better prospects for higher returns).
If you are wondering how to position your Tax-Free Savings Account (TFSA) in 2026, here are three quality stocks I’d pick up for long-term tax-free gains.
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WSP Global: A perfect long-term TFSA stock
WSP Global (TSX: WSP) stock is down 12% in the past six months and down 4.5% year to date. Yet, this stock has been a great compounder of value. It is up 114% in the past five years and 443% in the past 10 years.
WSP has built one of the largest engineering and advisory businesses in the world. Acquisitions have expanded its service expertise and widened its geographic exposure. In the past year alone, earnings before interest, tax, depreciation, and amortization (EBITDA) margins have risen from 17% to 20%.
WSP has a $16.4 billion backlog that supports 11 months of future earnings. The market got a bit worried that organic growth had moderated to the low single digits. Yet, the past few years have been exceptionally strong. WSP is very acquisitive, so it is very likely to backstop that with strong acquisitions.
WSP stock is trading at its cheapest valuation in the past three years. It’s a nice time to add it to your TFSA.
Descartes: A top serial acquirer
Descartes Systems Group (TSX: DSG) has been another strong long-term performer until it hit a recent road bump. Even after falling 21% this year, Descartes stock is still up 391% in the past 10 years.
Descartes operates a leading transportation network that is complemented by an assortment of specialized software services. Its software is often replacing pen and paper processes, so it can instantly become a big time and money-saver for clients.
Descartes has every hallmark of a great compounder: strong recurring service revenue, high margins, mid-teens average growth, cash-rich balance sheet, and smart acquisitive growth. Descartes’s valuation has fallen to a multi-year low, so it’s a great time to add it to your TFSA.
First Service: This drawdown is a great time to add to our TFSA
Like the other stocks above, First Service (TSX: FSV) has a long history of good mid-teens annual returns. Yet, its stock has drawn down by 18% this year.
First Service’s property management business is resilient. It’s an essential service to its clients and provides steady, recurring income. It also generates a lot of cash. First Service has deployed that cash into a diverse mix of property repair services (roofing, restoration, painting, and cabinetry). Given the limited major storms this year, restoration and roofing have had a weaker-than-normal year. Yet, this is likely temporary.
In the long term, climate change is leading to a steady rise in storm damage and insurance claims. First Service still has a large market to consolidate, so its growth story is far from over. The pullback is an attractive time to add this quality stock to your TFSA.
