As the S&P/TSX Composite Index pushes higher, bargains across the Canadian market are becoming increasingly difficult to find. Still, several fundamentally strong companies have recently pulled back from their peaks, giving investors a chance to buy quality businesses at more attractive valuations.
Moreover, holding them within a Tax-Free Savings Account (TFSA) can make them even more attractive. Since eligible investment gains and income earned inside a TFSA are generally sheltered from Canadian tax, investors can retain more of the wealth generated by long-term share-price appreciation.
Against this background, here are two undervalued stocks that appear worth holding in a TFSA now.
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Undervalued Canadian stock #1: MDA Space
MDA Space (TSX: MDA) stock looks undervalued relative to its growth potential. After falling considerably from its 52-week peak, shares of space technology offer TFSA investors an opportunity to build a long-term position and benefit from the continued expansion of the global space economy.
MDA Space’s diversified operations provide exposure to several high-growth areas, including Satellite Systems, Robotics & Space Operations, and Geointelligence. Further, increased government spending on sovereign space capabilities, higher defence budgets, expanding satellite connectivity, and greater reliance on space-based intelligence and data augur well for future growth.
MDA Space’s financial performance reflects this favourable backdrop. Revenue for the first half of 2026 climbed 33% year over year to $963 million, with all three business segments contributing to the increase. At the end of the second quarter, the company also reported a backlog of roughly $4 billion, providing substantial visibility into future revenue.
Its growth runway remains solid. MDA Space has identified an opportunity pipeline of approximately $40 billion, including numerous government and defence programs worldwide. Repeat business and expanded contracts from existing customers further strengthen the outlook.
Strategic acquisitions are also broadening the company’s capabilities. The CLS deal adds AI-powered Earth observation and satellite IoT technologies, expands geospatial services, and is expected to boost adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings per share (EPS) during its first year while significantly increasing recurring revenue. The Blue Canyon Technologies acquisition, meanwhile, expands MDA Space’s addressable market and U.S. defence exposure while adding a profitable, cash-generating operation.
Although near-term market concerns have weighed on the stock, MDA Space’s fundamentals remain strong. Its diversified business, substantial backlog, sizeable pipeline, and strategic acquisitions will support sustained earnings and cash-flow growth, making the stock an appealing long-term TFSA investment.
Undervalued Canadian stock #2: Celestica
Celestica (TSX: CLS) stock offers attractive risk-reward near the current price levels, especially as the company is likely to benefit from the rapid build-out of artificial intelligence (AI) infrastructure.
Celestica stock has declined by more than 25% over the past three months and remains significantly below its 52-week high. The pullback has created an opportunity to buy and hold this top AI stock inside a TFSA.
Celestica’s growth is driven by its Connectivity & Cloud Solutions (CCS) segment, which is closely tied to the expansion of hyperscale data centres and AI computing infrastructure. As AI workloads become more demanding, data centres require substantially greater networking capacity and increasingly sophisticated infrastructure, positioning Celestica to benefit from this structural shift.
CCS segment’s revenue increased 84% year over year in the second quarter, and accounted for most of Celestica’s total revenue. Within the segment, communications revenue rose 62%, reflecting strong adoption of 800G networking switches alongside continued demand for 400G products. Enterprise revenue was even stronger, increasing 167%, helped by AI and machine-learning deployments for a major hyperscaler as well as improving demand for storage solutions.
Importantly, the growth opportunity extends beyond Celestica’s current product cycle. The continued transition toward 800G networking, the introduction of next-generation 1.6-terabit solutions, a potential recovery in enterprise storage spending, and sustained capital investment by hyperscale cloud providers could provide multiple platforms for further revenue expansion.
Overall, Celestica’s strong AI-driven growth and recent decline in its share price make the stock worth considering.
