3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he’d buy before global stock markets stage a recovery from their 2022 declines.

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Global stock markets have had quite a pullback this year. As a result, the share prices of many high-quality businesses have fallen significantly.

I don’t know when the stock market will recover. But history tells us that at some stage in the not-too-distant future it will, pushing share prices higher. With that in mind, here are three stocks I’d buy for my portfolio before the market rebounds.

This FTSE 100 stock looks cheap

One stock I certainly think has a lot of rebound potential is retail giant JD Sports Fashion (LSE: JD). Its share price has taken a huge hit this year on the back of recession fears and I expect it to bounce back at some stage.

The reason I’m bullish here is that in past economic downturns, spending on athletic footwear and leisurewear has been quite resilient. In the Global Financial Crisis of 2008/2009, for example, JD actually grew its revenues significantly.

Meanwhile, after the recent share price fall, the stock now looks very cheap. At present, the forward-looking P/E ratio here is under 10. That seems too low to my mind, given the company’s track record and growth prospects.

Of course, if consumers do rein-in their spending dramatically due to the cost-of-living crisis, JD could be impacted. However, with the stock trading at such a low valuation, I think the risk/reward profile is favourable for me.

A ‘no-brainer’

Another stock I’d buy before the market rebounds is US-listed payments giant Mastercard (NYSE: MA). Mastercard shares seem like a no-brainer to me right now. For starters, the company is a beneficiary of inflation. As prices rise, so do its revenues, as it takes a cut of every transaction it processes.

Secondly, if we do see a recession, consumers are likely to turn to credit cards. In this scenario, Mastercard is likely to benefit.

However, Mastercard isn’t the cheapest stock around. Currently, it has a P/E ratio of about 30 (25, using next year’s earnings forecast), which adds some risk. However, I’m comfortable with that valuation, given the fact that, in the decade ahead, trillions of transactions are set to shift from cash to card.

An under-the-radar growth stock

Finally, I’d also buy shares in Kainos (LSE: KNOS) today. It’s a FTSE 250 technology company that helps organisations with digital transformation. Like many other technology stocks, its share price has taken a big hit in 2022.

Kainos has now registered 12 consecutive years of growth, with revenue growth in its last financial year (ended 31 March) coming in at a very impressive 29%. And, looking ahead, I expect the company to continue growing as businesses realise the importance and benefits of digital transformation (digitalisation and automation can help offset inflation).

It’s worth noting that in the company’s recent full-year results, the contracted backlog was up 26% to £260m. Meanwhile, CEO Brendan Mooney said that demand for the company’s services had “never been higher”.

I’ll point out that if the technology sector continues to underperform, Kainos shares could produce disappointing returns. I’m willing to take on this risk though. With the stock currently trading on a P/E of around 27, I’d be comfortable buying it for my own portfolio today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Edward Sheldon has positions in Kainos and Mastercard. The Motley Fool UK has recommended Kainos and Mastercard. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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