A 100% return is usually elusive. There’s plenty of tech stocks and cutting-edge consumer stocks that promise to double your money, but usually fall short. However, a surprisingly boring stock that qualifies for your Tax-Free Savings Account (TFSA) could be an ideal multibagger candidate for 2021.
Here’s a closer look at a company that accounts for roughly half of my TFSA portfolio and could double your money by the end of the year.
TFSA stock of the year
Fairfax India Holdings (TSX: FIH.U) is my TFSA stock of the year. Now, most investors have either never heard of this niche stock or find it incredibly boring. But a closer look at its financials and underlying assets should reveal an attractive opportunity.
As the name suggests, Fairfax India is an investment company focused on India. Over the past six years, the team has deployed over US$1.8 billion (C$2.3 billion) across several private and public Indian companies. The portfolio now includes companies that manage India’s largest stock exchange, a major bank, a specialty chemical provider and the country’s third-largest airport.
Essentially, Fairfax India is a proxy for India’s economic growth.
Why will Fairfax double?
There’s two reasons I believe this TFSA stock could double by the end of the year. For one, the stock is already undervalued and trading below book value. At the time of writing, Fairfax India stock is trading at US$12.2. Meanwhile, its net asset value per share is US$16.37 – a 34% premium. That’s tremendous upside even if the stock bounces back to net asset value.
However, when you consider the potential for growth in book value, that expands the upside. India suffered a deep recession last year on account of the health crisis. However, cases have dropped and the country is about to unleash an unprecedented vaccination drive.
According to the International Monetary Fund, India’s national output could rebound a whopping 11.5% in 2021. The country’s stock market has already recovered. Since March, 2020, India’s Nifty 50 Index (a collection of its 50 largest stocks) is up 100%. Fairfax India owns several companies on the stock market. That means its book value should surge higher by the end of the year.
Assuming Fairfax India’s portfolio outperforms the local economy and stock market (which is its mandate), the book value could be far higher by the end of 2021. This is why my price target for this TFSA stock is $24.
Bottom line
If you have $1,000 to invest in your TFSA, I’d recommend taking a closer look at Fairfax India. The stock is a proxy for India’s potential growth over the long term. The world’s fifth-largest economy has a population that’s younger than China and a rapidly expanding base of consumers.
If the economy and stock market rebound in the second-half of this year, Fairfax could see a jump in book value. Meanwhile, the stock price is already at a significant discount to book value. Good things happen to cheap stocks.
