The Best TFSA Stock for Value Investors

TFSA stocks like AutoCanada (TSX:ACQ) should be on your radar.

| More on:

While growth stocks had an incredible run last year, value stocks have clearly gained the upper hand this year. Undervalued, conventional stocks with low growth but positive earnings are performing better as the economic recovery gathers pace. That means it’s an ideal time to add some value stocks to your Tax-Free Savings Account (TFSA). 

AutoCanada (TSX:ACQ) is a top pick for your value-oriented TFSA stock portfolio. It has had an impressive run that started last year and is showing no signs of exhaustion. After a 200% plus spike in 2020, the stock is up 88% year to date and is currently flirting with record highs. The impressive run stems from the fact that the car dealerships are booming. 

Supply-chain problems and a lack of computer chips have slowed down the production of new cars. But households have excess savings, which means demand for cars has never been higher. In 2021, a used car could be worth just as much as a new car. This paradoxical situation has boosted AutoCanada’s profits. 

Growth prospects

The company sells vehicles of 21 automobile brands, with six brands being the most sold brands in the country. In addition to 50 franchised dealerships in Canada, the company also operates 14 franchises in the U.S. 

Canada has fewer car dealerships per capita than the U.S., but we buy just as many cars. That means there’s more room for organic growth here too.

In addition to auto sales, AutoCanada also provides services such as vehicle leasing. It also arranges financing and insurance via third-party financial providers. These segments of the company have been growing rapidly ever since the lockdowns kicked in last year. 

Improving financials

In the first quarter, AutoCanada posted a 36.8% increase in revenues to $969.8 million, in line with management guidance. For the second quarter, management is projecting revenues of between $960 and $980 million.

For the full year, sales are projected to grow 27% year over year to $4.23 billion and 5.2% in 2022. The company is also projected to bounce back from a net loss of $0.27 a share in 2020 to a profit of 3.18 by 2022.

Amid the 88% plus share price gain, the company is no longer cheap as it is trading with a price-to-earnings multiple of 23.8 and a price-to-book multiple of 3.8. However, it is a small price to pay considering the company’s growth trajectory and long-term prospects.

Bottom line

The economic recovery has boosted the prospects for undervalued, conventional stocks. AutoParts Canada, for instance, has been a prime beneficiary of the car shortage. Record-high household savings and pent-up demand for automobiles have pushed the sale price of used cars beyond new ones. Meanwhile, demand for leasing and maintenance is also skyrocketing. 

AutoParts’ stock trades at a reasonable valuation and has plenty of room to further consolidate the North American market. If demand remains elevated, investors could be in for a windfall. That’s why this TFSA stock deserves a spot on your watch list.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Vishesh Raisinghani  has no position in any of the stocks mentioned. 

More on Investing

open vault at bank
Dividend Stocks

Don’t Get Cute; Just Buy Stability: Top Defensive TSX Stocks to Buy Now

A healthy risk tolerance is essential for most investors, but many stray from the tried and tested, hoping to find…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

TFSA Investors: Buy These 3 Stocks for $3,480 Yearly Tax-Free Income

One significant benefit of a TFSA-based dividend income is that it doesn’t weigh down your tax bill.

Read more »

a-developer-typing-lines-of-ai-code-while-viewing-multiple-computer-monitors
Tech Stocks

Could Constellation Software Become the Next Berkshire Hathaway?

Constellation Software's (TSX:CSU) capital-allocation strategy is similar to that of Berkshire Hathaway (NYSE:BRK.B).

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, November 8

The TSX Composite benchmark remains on track to end the week with strong optimism as it currently trades with 2.4%…

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

3 High-Yield Dividend Stocks That Are Screaming Buys Right Now

Are you looking for great income stocks? Here's a trio of high-yield dividend stocks that pay insane yields right now.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Bank Stocks

Best Stock to Buy Right Now: TD Bank or Manulife Financial?

Manulife continues to see momentum in its business and stock price, while TD Bank stock remains down and out.

Read more »

cloud computing
Tech Stocks

3 No-Brainer Tech Stocks to Buy With $1,000 Right Now

These three Canadian tech stocks could be among the best growth opportunities in the market right now.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform a $5,000 TFSA Into a $50,000 Retirement Nest Egg

The TFSA is a powerful tool that can grow a small investment into a substantial retirement nest egg over time.

Read more »