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TFSA 101: 2 Stock Bargains Under $40 a Share

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Written by Joey Frenette at The Motley Fool Canada

Your TFSA (Tax-Free Savings Account) is meant to build wealth over the long haul. When going on the hunt for stocks to stash in it, you should focus on quality firms that can help you score decent total returns (that’s capital gains plus dividends) relative to risk over the course of your planned investment horizon. If you’re young, with 10 years or more to invest, you may wish to look at growthier firms with slightly higher multiples. However, you must be sure to minimize your risk of overpaying for a stock, especially amid a strong market rally.

While I still think there are plenty of stock bargains on the TSX Index and S&P 500, TFSA investors should be selective when it comes to the names they choose to pick up.

In this piece, we’ll consider shares of one growth-focused retailer that’s slipped considerably from its highs and one “Steady Eddie” dividend play.

Both companies are intriguing, with interesting growth runways and I what I believe is a modest valuation multiple at the time of writing. Without further ado, consider Aritzia (TSX:ATZ) and Telus (TSX:T), two names priced below $40 per share that may be TFSA worthy for new investors seeking to do better than the TSX.

Aritzia

Aritzia has endured quite a painful bear market plunge, now down around 33% from 52-week highs and nearly 40% from all-time highs of around $60. Indeed, macro headwinds and recession fears could weigh on demand for various consumer goods. Still, I think Aritzia will be back on track once the recession (if it’s still on) ends and the economy is ready for its next upcycle.

Undoubtedly, such a fashionable retailer will likely always be subject to enhanced volatility when economic growth begins to slip. That said, I am a fan of the longer-term story, as Aritzia looks to continue growing its brand in the U.S. market. I think the American market will be key to Aritzia’s longer-term growth story.

For now, investors are a tad downbeat over the weak outlook. For the latest quarter, Aritzia delivered decent results, but with inflation and macro concerns, there’s some concern that future quarters could be weighed down a bit. Aritzia shares plummeted sharply (more than 20%) after the quarter. I think the drop is overdone.

Of course, it’s always difficult to jump in as a buyer after such a big drop. However, long-term TFSA investors who can handle the volatility may be able to capture value in the name. At around 21 times trailing price to earnings, ATZ looks fairly priced for a firm that has a long growth runway.

Telus

Telus stock is down just shy of 20% from its all-time high. With a dividend yield just north of 5%, the stock is a low-cost way to bolster your TFSA’s passive-income stream. For younger investors, I’d reinvest every penny of the dividend payments to get the most out of compounding. With so many woes over last year’s rate hikes weighing down the stock, I’d look at Telus as a potential recovery play for when rates begin to turn, whenever that may be.

Who knows? In late 2024 or 2025, we may be looking at rate cuts or at least talk of rate cuts. And as the economy bounces back, Telus seems to be in a decent spot for TFSA investors seeking relative stability in a rough market.

The post TFSA 101: 2 Stock Bargains Under $40 a Share appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aritzia. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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