High-growth stocks typically expand their businesses and earnings at rates well above the industry average, offering investors the potential for outsized long-term returns. However, their attractive growth prospects often command premium valuations, while evolving business models and heightened sensitivity to market sentiment can make these stocks considerably more volatile.
As a result, high-growth stocks generally suit investors with a higher risk-taking ability and a long-term investment horizon. Holding these companies in a Tax-Free Savings Account (TFSA) can further enhance their wealth-building potential, as eligible investment gains and income can compound tax-free within the account.
Against this backdrop, let’s explore two high-growth stocks that could potentially supercharge your TFSA returns over the long term.
Source: Getty Images
Celestica
Celestica (TSX: CLS) provides critical data centre infrastructure for artificial intelligence (AI), cloud and hybrid cloud, and advanced technology solutions. The growing adoption of AI by businesses, governments, and consumers has prompted hyperscalers to expand their AI-ready data centres. These expansions are driving the demand for Celestica’s products and services. Given the favourable environment, the company is focusing on developing innovative products to strengthen its market position and strengthening its production capabilities to meet customers’ growing needs.
Moreover, the company recently posted an impressive second-quarter performance, with its revenue and adjusted EPS (earnings per share) growing by 62% and 82%, respectively. In addition, its adjusted operating margin expanded by 80 basis points to 8.2%. On the back of its impressive second-quarter performance, the company’s management has raised its guidance for this year. The new guidance projects 65% revenue growth and 87% growth in adjusted EPS. Management also expects growth to accelerate further next year amid robust customer demand and an expanding pipeline of new program wins.
Moreover, Celestica has been under pressure recently amid the AI sector selloff and has lost around 34% of its stock value from its 52-week high. Amid the correction, its valuation has fallen to an attractive level, with its NTM (next-12-month) price-to-sales and price-to-earnings multiples at 1.3 and 20.9, respectively. Considering its higher growth prospects and reasonable valuation, Celestica would be an excellent addition to your TFSA.
5N Plus
Another high-growth stock that could supercharge your TFSA returns is 5N Plus (TSX: VNP), a leading provider of specialty semiconductors and performance materials. The company has developed a portfolio of proprietary, proven technologies that enable it to manufacture highly specialized products for a range of growing end markets.
5N Plus delivered a strong second-quarter performance, with revenue increasing 28% year over year, driven by higher volumes across its Specialty Semiconductors and Performance Materials businesses. While gross profit rose 12%, adjusted gross profit margin fell 430 basis points to 30.3%, mainly due to higher metal and chemical input costs. Despite the margin pressure, net income climbed 29.6% to $18.7 million. The company also significantly strengthened its balance sheet, reducing net debt to $23.7 million from $50.3 million at the beginning of the year.
Looking ahead, 5N Plus appears well positioned to capitalize on several long-term growth opportunities. Rising demand for specialty semiconductor materials, combined with the resilience of its Performance Materials business, provides multiple avenues for sustainable growth. Its expertise in producing ultra-high-purity semiconductor materials could prove particularly valuable as demand for advanced technologies and critical materials continues to increase. The company also recently received a US$7.3 million award from the U.S. Department of War to establish domestic production of gallium arsenide components for defence applications, potentially strengthening its position in the strategically important North American semiconductor supply chain.
Meanwhile, the stock has faced significant selling pressure in recent days and has declined approximately 49% from its 52-week high. This sharp correction has brought the valuation to more attractive levels, with the stock trading at approximately 3.1 times forward sales and 24.3 times forward earnings. Given its strong growth prospects, improving balance sheet, exposure to secular trends, and more reasonable valuation following the recent pullback, 5N Plus could be an attractive high-growth opportunity for long-term TFSA investors.
