Canadians can invest in individual stocks, bonds, indexes, ETFs and mutual funds within their TFSA. Any interest, dividends and/or capital gains are completely tax-free. The best part is that when you withdraw your capital, there is no tax on the withdrawal either.
The TFSA is the ideal place to make long-term investments. You want to build significant capital gains in that account. You do not want to pay tax on 5, 10 or 50 tax returns. The TFSA becomes the most efficient place to hold stocks that you expect to deliver big returns.
If you’re looking for some TFSA ideas, here are a few examples of stocks that have delivered significant returns over the long term, and of stocks that could deliver great returns in the future.
A share that benefits from the data center and electricity explosion
Hammond power solutions (TSX:HPS.A) is probably one of the most successful TSX stocks that most investors have never heard of. This $1.8 billion stock is up 2,432% over the past five years! A $10,000 TFSA investment five years ago would be worth $252,866 today! That is a capital gain on which you do not want to pay tax.
Hammond has steadily expanded its portfolio of specialist transformers and critical electrical components. During the pandemic, this stock traded at low single-digit earnings.
However, secular themes such as electrification, on-shoring of production, renewable energy and artificial intelligence have led to a wave of demand for its products.
These days, Hammond is a bit pricey at 22 times earnings. However, the stock has recently pulled back. If it gets closer to 15 times, it could be an interesting time to add it to your TFSA.
This TFSA share would have multiplied your capital immensely
TerraVest Industries (TSX:TVK) is another unusual stock that would have delivered exceptional returns for shareholders. The share price is up 717% in the last five years and 1,880% in the last ten years. If you invested $10,000 TFSA dollars in TerraVest ten years ago, it would be worth $195,000 today. You don’t want to pay taxes on that kind of growth.
TerraVest operates a mix of rugged industrial businesses, including tank and trailer manufacturing, boilers and energy services. The company’s secret sauce is its ability to reach low-cost companies and use best practices to maximize profits.
Like Hammond, its valuation has risen significantly in recent years. This stock is currently in a slight decline. It may mean that you can add it at a more attractive price for a longer term.
Hold these small-cap stocks for the long-term TFSA compound
If you want a stock that is still in the early innings, Firan Technologies (TSX:FTG) could be a great addition to a TFSA. The stock is up 431% in the past five years. However, it only trades with a market cap of $262 million. This company could still have substantial growth ahead.
Firan supplies printed circuit boards, cockpit components and specialized sensors and hardware to the aerospace industry. Smart acquisitions have expanded production capacity and product range.
Airlines’ demand for new aircraft is insatiable. Defense spending is also increasing. All these factors support the increased demand for Firan’s products.
The company trades at a significant discount to other aerospace component suppliers. For a reasonably priced stock with long-term growth, this is an ideal stock to hold within a TFSA for the long term.
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