Market correction: stocks to buy before the bourses recover

I am always looking for stocks to buy that can help my portfolio grow and generate passive income. And I think this time offers a unique opportunity to buy the best stocks.

When in FTSE 100 has been pushing things up this week, the fact is that many sectors have suffered – the index has been hauled up by soaring supply stocks.

But just because a stock is trading at a lower share price than a year ago, doesn’t mean it’s cheap. In fact, stock prices often fall for a reason.

However, in the middle of a beaten market, I have a better chance of finding the best stock trading at lower multiples.

So what do I buy before the market recovers?

A bank is set to outperform

Barclays (LSE:BARC) has underperformed over the past year. But the stock is only down 11% over 12 months, thanks to the recent rally.

This year was beset with challenges. Disruption costs have risen over the year, reaching £381m in the third quarter. On a nine-month basis, the charge for potential bad debts rose to £722m, compared to a release of £622m last year.

Barclays was also fined $361m for mis-sold securities.

However, there are several reasons to believe that 2023 will be a better year.

First, interest rates rise and this translates into higher net interest margins (NIMs). This is because imperfect banks offer higher loan rates to save customers.

Any change in the Bank of England’s base rate will have an impact on revenue, not least because Barclays earns interest on cash deposits with the central bank. But Barclays also uses a hedging strategy to smooth the impact of interest rate changes on net interest income.

Analysts have predicted that this could lead to an interest rate tailwind of £5bn in additional revenue by 2025.

I also expect the macro economic outlook to improve by the end of the year, and this should be reflected in share prices. That’s why I recently added more stocks to my portfolio.

China reopens

My second choice would be in China where stocks have really taken off over the last year.

2022 is a very difficult year for Chinese auto stocks. Lockdowns and movement restrictions weigh on demand and cause supply chain congestion. As a result, delivery slowed and expansion slowed.

However, 2023 should be a better year. Economic normality should be achieved for the first time in three years when the current epidemiological situation improves.

My top choice is Li Auto (NASDAQ:LI). The stock is down 25% over the past 12 months, and while the share price still shows considerable volatility, I back it to rise in 2023.

Performance has improved, with 20,000 electric vehicles (EVs) delivered in December, up 33% month-on-month. The L9 was well received in the summer, and the launch of the five-seater L7 in February has been highly anticipated.

Chinese EV manufacturers will also benefit from tax exemptions on new EV sales in 2023.

I recently bought my first Li Share, and I’m still going to buy more. The price is an important reason for this – it trades in many cheaper than its US counterparts. It could also be the first Chinese EV company to turn a profit.