TFSA Growth: 2 Battered Stocks to Buy for Long-Term Results

Money growing in soil , Business success concept.

Growth stocks can be a great addition to any long-term-focused Tax-Free Savings Account (TFSA). Indeed, investing in higher-growth companies can entail heightened volatility. But it need not entail much higher risk, provided you conducted a valuation beforehand and are not overpaying.

High price-to-earnings (P/E) ratios in various growth stocks can be tough to get behind. However, if you’ve got a company with a competitive market edge and the means to keep growing at an above-average rate for years, the high P/E may be well deserved. In some instances, an even higher P/E may be deserved!

Regardless, investors mustn’t neglect valuation when it comes to those high-P/E growth stocks. If anything, you should put in more due diligence when evaluating a company and its market, given the stakes are higher when it comes to such names, especially if growth slips in any given quarter.

Personally, I find there’s no sense in differentiating between growth and value investing. A growth stock can be rich with value, just like an old-school company that’s lacking on the growth front.

In that regard, I’d like to point TFSA investors to two intriguing plays that may make for sound long-term investments. Both companies are growing quickly but have multiples that I believe aren’t all too excessive. If anything, you can consider each name as a value play that’s more than capable of above-average growth over time.

Consider shares of TFI International (TSX:TFII) and Waste Connections (TSX:WCN).

TFI International

TFI International may very well be Canada’s most underrated company. The $14.8 billion company is in the business of trucking. And though the trucker has been through more than its fair share of bumps in the road over the past few years, I believe management has learned from its past mistakes. Indeed, the TFI of today is much better than the one that stumbled in 2019 and 2020.

Though trucking demand is tied to the health of the economy, I still view TFI as more than capable of averaging high double-digit, top-line growth over the next 10 years. Recession or not, TFI offers a vital service with wonderful managers running the show.

At writing, the stock trades at 17.77 times trailing P/E, with a 1.06% dividend yield. I’d argue TFII stock ought to be worth at least 20 times P/E, given its long-term growth potential in the massive logistics market. TFII is a small fish in a massive pond. Even though the stock’s fresh off a new high, it still doesn’t look priced with growth in mind.

Waste Connections

Waste Connections is another low-tech growth company that may be worth betting on, even as shares move within striking distance of new all-time highs. Driven by smart acquisitions and excellent management moves, I believe the firm can grow at a 10% rate over the next 10 years, regardless of how many mild recessions hit the Canadian or American economy.

At the end of the day, defensive growth should be worth a fat premium. Today, the stock trades at 24.3 times forward P/E. Seems like a fair price to pay. But given the economic risks ahead, I’d argue a higher multiple may be warranted. In any case, WCN stock looks like a great TFSA holding for the decades.

The post TFSA Growth: 2 Battered Stocks to Buy for Long-Term Results 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.