Are you looking for Tax-Free Savings Account (TFSA) stocks that are “screaming buys” for March?
In one sense, it’s not the most sensible question to ask because the melodramatic “screaming” language employed in the question risks influencing the asker to make rash decisions.
However, there is one class of “stocks” that really is worth screaming about: index exchange-traded funds (ETFs).
Index funds are diversified portfolios of stocks based on major equity indexes. “Exchange-traded funds” are funds that trade on the stock market. Index ETFs are index funds in ETF form. Studies show that these funds outperform 95% of professional investors over a 20-year time frame and are at low risk, too.
While an ETF is technically a little different from a stock, it is nevertheless a stock investment because it trades on the stock market and has stocks under the hood. With that in mind, here’s one TFSA stock investment that is a screaming buy in March.
Vanguard Emerging Markets ETF
Vanguard Emerging Markets ETF (TSX:VEE) is an index fund that invests in some of the cheapest and fastest-growing companies in the world. Emerging market countries are nations like China, India and Brazil, which typically grow faster than Western countries. Due to the cheapness of these countries, VEE’s portfolio trades at low multiples:
- 14 times earnings
- Two times book
That’s despite its underlying companies growing earnings at 15%!
The same metrics for the S&P 500 are as follows:
- 33 times earnings
- Five times book
- 18.7% earnings growth
Technically, the S&P 500 earnings growth rate is still a bit higher than that of VEE’s portfolio. However, the PEG (price-to-earnings-to-growth) ratio for VEE (0.93) is far lower than the S&P 500’s (1.76). So, you pay less for the growth you get with VEE.
Fund characteristics
VEE has many characteristics that make it desirable to investors:
- High diversification (5,884 stocks)
- A relatively low fee (0.23%)
- A decent amount of trading volume
- A comparatively cheap valuation
These basic characteristics should help VEE deliver adequate investment performance over the long term. However, where VEE really shines is in its potential as a tactical bet in 2025. With the valuation discrepancy between the S&P 500 and VEE, the level of outperformance this fund could deliver is substantial. This isn’t guaranteed, of course, but with the U.S. markets trading near an all-time high P/E ratio and an even higher Shiller PE ratio (price to five-year normalized earnings), global stocks could really shine. VEE is your best way to get diversified global stock exposure on the TSX.
The bottom line
Is any stock ever a screaming buy? It depends on how informed you are about it and the price you have to pay for it. While I know few individual stocks today with truly off-the-charts performance prospects and cheap valuations, I know that index funds deliver “scream”-worthy outperformance over time. You’d probably do fine in the long term holding a TSX index fund and just sitting on it. However, with North American equities trading at a record-high premium to global equities, VEE is the more exciting opportunity.
