Investing in growth stocks and holding the shares in a Tax-Free Savings Account (TFSA) can be an excellent way to get the most out of the returns you can generate in the stock market. Any investments you make in eligible investment products and hold in a TFSA come from after-tax dollars.
Any growth from assets held within a TFSA is untouchable by the Canada Revenue Agency (CRA) because you have already paid taxes on the amount you invested. To make things even better, there are no penalties for early withdrawals or taxes on withdrawals you make from a TFSA.
Investing in growth stocks with a long investment horizon can make all the difference. Today, I will discuss three TSX stocks that can be excellent long-term picks for a TFSA.
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Celestica
Celestica Inc. (TSX: CLS) is a $54.2 billion market cap TSX tech stock that primarily engages in providing supply chain solutions to equipment manufacturers and service providers worldwide. Amid the recent rise in the focus on Artificial Intelligence (AI), AI infrastructure, and data centres, Celestica provides the advanced tech solutions necessary for operators in this space.
AI adoption is growing rampantly across individuals, governments, and businesses, driving hyperscalers to expand their AI-ready data centre infrastructure. This trend presents the prospect of solid long-term growth for Celestica, which continues developing more solutions to strengthen its position in the fast-growing market. As of this writing, it trades for $471.51 per share and might be a good addition to consider before it soars higher.
Dollarama
Dollarama Inc. (TSX: DOL) might not be in the tech sector, but it is a growth stock nonetheless. Belonging to the consumer staples sector, Dollarama seems like an unlikely pick for growth stocks. However, the business model of the $51.1 billion market cap company gives it the appeal of a growth stock that is backed by defensiveness.
Boasting over 2,100 locations, most of them in Canada and the rest in Australia, Dollarama is a discounted retailer that people turn to when they want to save costs. It operates a cost-efficient business through its direct-sourcing model and a well-established logistics network that minimizes its costs. By offering a broad range of products at lower-than-usual prices, it leverages the demand to cut costs to its benefit.
Well-positioned to continue expanding its network, Dollarama stock trades for $187.54 per share and might have far more room to grow over time.
Savaria
Savaria Corp. (TSX: SIS) is a business that deals in an entirely different space. The $2.1 billion market cap company provides accessibility solutions to physically challenged individuals. No matter how good or bad the overall economy is, there will always be a need for accessibility solutions. People keep growing older and require assistance, which Savaria’s products can promptly provide.
The global population is aging, expanding the company’s addressable market. It also has a diversified manufacturing footprint that can give it much-needed flexibility in today’s dynamic geopolitical environment.
The company’s product innovations and strategic acquisitions can help it beat competitors and position it for substantial long-term growth. As of this writing, it trades for $28.90 per share.
Foolish takeaway
Growth stocks can grow their revenue and earnings faster than the rest of the economy, potentially leading to substantial long-term returns. However, the strong growth prospects of a company also make it a riskier investment.
When a stock starts making headlines for the growth potential it has, expectations rise. In case of any negative developments in the evolving business model, it can lead to significant downturns, just as much as positive developments lead to growth. This is why it’s important to be careful with how much you allocate to growth stocks when investing in a TFSA. The focus should be to create a well-balanced portfolio first, and then inject the potential for significant growth to mitigate potential losses.
