The Tax Free Savings Account (TFSA) limit increase is $ 6,000 for 2021. Investors with cash on hand are wondering which stocks the most important should be on their TFSA buying list.
Market outlook for 2021
U.S. markets are trading near record highs to start 2021 and TSX Index is near the 12-month peak reached just before the pandemic crash. Aggressive government intervention provided financial assistance to businesses and households in 2020, leading to a dramatic recovery in the stock market. The success of the COVID vaccine is largely responsible for the protracted surge in recent months.
Will the stock market rally continue?
On the eve of 2021, the stock market as a whole appears to be fully valued, if not overbought. Investors predict that vaccine deployments will open up the economy and lower unemployment in the months to come. It probably is, but most of the good news is already built into stocks today.
Given the high valuations, investors should be prepared for a significant correction in the coming months. Chasing the big winners of 2020 at current prices could be risky.
That said, many of the most successful stocks in 2020 remain oversold. Some of these names offer good dividends and could be extremely cheap if the market goes down.
Let’s take a look at two stocks that already seem attractively priced and should be good choices for investing in a TFSA in 2021.
Should Canadian Natural Resources stocks be on your TFSA buying list?
Canadian Natural Resources Limited is primarily known for its oil production, but the company is also a major producer of natural gas. Natural gas prices avoided the great crash that oil suffered in 2020, helping CNRL weather the recession.
Oil prices recovered through the end of 2020 and West Texas Intermediate (WTI) oil is now trading at nearly US $ 48 per barrel. CNRL’s operating breakeven price is close to the WTI at US $ 30, so the oil production business has the potential to generate decent profits at current oil prices. The company increased its planned capital program when it released the 2021 budget last month. This means that management has a positive view of cash flow.
CNRL pays an attractive dividend which should be safe and offers a yield of 5.5%. At the time of writing, investors in the TFSA can buy the shares at close to $ 31. The shares traded at $ 41 a year ago, so there is decent upside potential as the global economy recovers.
Is TC Energy’s stock too cheap to ignore?
TC Energy (TSX: TRP) (NYSE: TRP) normally makes headlines when news emerges about the development of its struggling Keystone XL pipeline in the United States. The Obama administration canceled the project. Trump gave him the green light, but Joe Biden would have to kill him again.
Although Keystone XL is a large project, it is only one part of TC Energy’s broad development portfolio which also includes natural gas transmission and power generation initiatives. In fact, TC Energy continues to move forward on industry-leading $ 37 billion guaranteed capital projects.
Cash flow is expected to increase steadily as new assets come into service. TC Energy plans to increase the dividend by 8-10% in 2021. Payout increases in 2022 and beyond are expected to be in the range of 5-7%. This is great news for TFSA investors who want reliable and growing income from their holdings.
TC Energy appears oversold at close to $ 52 per share and the dividend is delivering a 6.25% return at that price. The stock’s 12-month high is above $ 76. It wouldn’t be surprising to see TC Energy return to $ 65 per share in 2021.
The basics of investing in a TFSA
CNRL and TC Energy are reasonably priced right now. Businesses are industry leaders and pay good dividends. If you have cash available for the TFSA limit increase in 2021, these stocks are worth being on your radar.
Good news! The market gives investors a chance to buy these top stocks at cheap prices today.
Freshly published! 5 actions under $ 49 (FREE REPORT)
Motley Fool CanadaThe Leading Market Team has just released a brand new FREE report revealing 5 “Very Cheap” Stocks You Can Buy Today for Under $ 49 a Share.
Our team believes these 5 stocks are critically undervalued, but, more importantly, could potentially make quick-acting Canadian investors a fortune.
do not miss anything! Just click on the link below to grab your free copy and now check out all 5 of these stocks.
Andrew Walker, a silly contributor, owns shares of TC Energy.