For investors seeking long-term, tax-free wealth growth, the Tax-Free Savings Account (TFSA) stands as a cornerstone of financial planning in Canada. Its core strength is unmatched: all investment returns — whether from dividends or capital gains — compound completely free of tax, forever. This makes the TFSA an ideal vehicle for holding deeply undervalued stocks.
By identifying and holding fundamentally strong companies trading well below their intrinsic value, investors can harness the dual power of valuation recovery and the full, untaxed magic of compound growth. With a significant new contribution room increase on the horizon, finding such undervalued opportunities becomes even more critical.
A key financial planning milestone is approaching. Starting January 1, 2026, the annual TFSA contribution limit will increase by $7,000. For eligible investors who have never contributed since the TFSA’s inception in 2009, this raises their cumulative total contribution room to $109,000. This influx of new capital underscores the urgent need to identify high-quality investments poised for long-term appreciation.
For TFSA success, choosing the right stocks consistently proves more fruitful than timing the market. With the new contribution room in mind, here are two Canadian stocks currently trading at compelling valuations that warrant consideration for long-term portfolios.
Air Canada (TSX:AC) has languished in valuation territory for an extended period. Currently trading below $20 per share with a market capitalization of approximately $5.7 billion, the airline’s projected annual revenue exceeds $22 billion. This translates to a remarkably low price-to-sales multiple of about 0.25, ranking it among the cheapest in its sector.
While understandable concerns exist—such as recent declines in airfares and volatility in the lucrative international travel segment—much of this pessimism appears priced in. The stock trades at a forward price-to-earnings ratio of just about 8. For investors bullish on the resilience of consumer spending into 2026 and beyond, Air Canada offers a low-cost option to gain exposure to a potential industry recovery.
Mid-cap energy producer Whitecap Resources (TSX:WCP) presents another standout value proposition. The stock trades at less than 10 times forward earnings and offers investors an attractive dividend yield of 6.6%. As a leading Canadian energy supplier, it sits firmly in the value category.
Notably, Whitecap has also demonstrated growth characteristics. Despite a challenging environment for crude oil prices, the company’s ability to efficiently ramp up production has driven significant share price appreciation this year. Combining its capital appreciation potential with its substantial yield, investors could realistically target double-digit annualized returns over the next five years, even with stable oil prices. Should inflation rebound or geopolitical events drive energy prices higher, the upside could be substantially greater.
The upcoming increase in TFSA contribution room provides long-term investors with fresh capital to deploy. In a market where broad valuations remain elevated, the key is patient selectivity—focusing on undervalued, high-quality assets. The two stocks highlighted above represent distinct deep-value opportunities in out-of-favor and traditional sectors, respectively. They serve as prime examples of the types of companies that TFSA investors may want to research further and consider for their watchlists, following thorough due diligence and personal risk assessment.
