Abraham Lincoln once said, “Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.” That quote perfectly sums up the nature of truly undervalued stocks — companies quietly preparing, laying the groundwork, and waiting for the right moment to strike.
For patient investors, the Tax-Free Savings Account (TFSA) is the perfect place to hold these kinds of investments. Any capital gains made inside a TFSA are completely tax-free, giving you more power to grow long-term wealth.
With a $7,000 TFSA contribution limit in 2025, here are two undervalued stocks that could help sharpen your portfolio for future gains.
Also Read: Top Canadian tech AI stocks
- Advanced Micro Devices (NASDAQ:AMD)
Current Opportunity: AI potential flying under the radar
Pullback from peak: ~18%
AMD shares have slipped about 18% from their August 2025 high of $186.65 — despite positive news like loosened U.S. trade restrictions on China, which should have acted as a tailwind.
The company’s Q2 gross margins dropped to 43% (from 54%) due to a surplus of $800 million worth of Instinct MI308 chips — previously earmarked for China. While the U.S. has since allowed AMD to export these chips and collect 85% of the revenue, the market response has been muted.
Here’s the upside: AMD may have been late to the AI data centre game, but that doesn’t mean it’s out of the race. Its strategy has always been to enter mature markets with cost-efficient, high-performance alternatives — and the AI space is no different. With demand expected to surge, AMD’s AI chips could eventually deliver triple-digit EPS growth.
Currently trading at a forward P/E of 26.7, AMD is significantly cheaper than peers like Nvidia (39.7) and Broadcom (39). Yet all three are riding the same AI infrastructure wave.
TFSA Bonus: Capital gains from U.S. stocks like AMD are tax-free in a TFSA. Just avoid U.S. dividend stocks here — those are still subject to withholding tax.
Also Read: Long term investing in Canada
- Constellation Software (TSX:CSU)
Current Opportunity: Accumulate during flat performance
Constellation Software is one of Canada’s most consistent compounders — and right now, it’s trading around its 2025 dip at just over $4,300.
The stock has gone mostly sideways this year, weighed down by macroeconomic uncertainty and delayed business tech spending. But underneath the surface, Constellation is quietly doing what it does best: buying vertical software businesses and building long-term cash flow.
Valuation-wise, CSU now trades at an enterprise value-to-sales ratio of 6.5, the lowest level in five quarters — signaling strong relative value. Once the economy stabilizes, many of the businesses it has acquired are poised for a recovery in demand, helping boost both revenue and portfolio value.
With foreign exchange losses expected to subside and tech investments picking up again, Constellation remains a buy-on-the-dip, hold-for-years type of stock.
Final Thoughts: Long-Term TFSA Wins Start with Value Buys
Both AMD and Constellation Software are prime examples of companies “sharpening the axe” — preparing now to capitalize on future tailwinds. And when held inside a TFSA, the long-term gains from these undervalued stocks become even more powerful thanks to the tax-free growth potential.
If you’re looking to turn your 2025 TFSA contribution into meaningful, long-term returns, these two stocks are well worth a close look.
Sign Up For our Newsletters to get latest updates
