Stock market correction: I’d start buying cheap FTSE 100 shares to build wealth

In a difficult year for the market, the FTSE 100 finish 2022 in positive territory. Including dividends, the large-cap index produced a positive return of around 5%.

However, the index is characterized by some heavy hitters included shell (+44%), Glencore (+48%), BAE system (+ 55%) and British American Tobacco (+20%).

In total, only 28 FTSE 100 stocks ended the year with share prices higher. The remaining 72 companies ended the year in the red, with some big names experiencing serious corrections:

• Ocado – down 63%
• persimmon – down 57%
• Scottish Mortgage Investment Trust – down 46%
• Sports Fashion JD – down 42%
• Taylor Wimpey – down 42%

Broadly speaking, I think 40 FTSE 100 stocks have seen a decline of 20% or more in the past year. That’s why I argue that Footsie really did experience a stock market correction last year.

I consider this falling stock to be a great opportunity right now. Although some of these companies have been late to sell-off, I think some of them now look cheap.

In the rest of this piece, I’ll highlight three sectors where I see buying opportunities in 2023.

Industry

Last year’s sell-off hit some big industrial stocks. Respected names such as steam management and pump specialists Spirax Sarco Engineering down more than 30%. Testing and certification group Intertek suffered the same drop.

This market-leading business looked expensive at the start of 2022 and still doesn’t look cheap today. But both have high profit margins and impressive long-term growth records.

While there is some risk that a global recession could put more pressure on the company in 2023, I think it could be a good buy-and-hold option for investors.

Banks and insurance

Most of the big FTSE 100 banks offer attractive dividend yields and are likely to benefit from higher interest rates.

Although banks face the risk of increased losses in mortgage loans and other loans during the recession, in the balance I’m in a good position and affordably priced. I continued NatWest Groupbut will also consider Lloyds or Barclays.

Insurers such as Aviva and Legal & General it also looks decently priced to me, with a dividend yield of close to 8%. Even though the business is complex, I think it will do well and will benefit from higher interest rates.

House builder

Rising mortgage costs and a cost-of-living crisis mean the UK housing market is slowing.

The broad sell-off also means some big housebuilders are now trading below net asset value with attractive dividend yields. I think this share is starting to offer good value.

The risk is that we don’t know until the housing market still has to fall. On the other hand, most FTSE housebuilders appear to be well prepared, with plenty of cash, strong profit margins and low debt levels.

Underlying demand for new homes also appears strong. I am interested in such companies Barratt’s Development and Taylor Wimpey at the current rate.

Is it time to buy?

There is no guarantee that the company will recover immediately. We may see more market volatility in 2023.

However, I think this is an example of a good quality FTSE 100 business with the potential for strong investment returns over the medium term.