3 of the best ASX shares I’d buy now for a stock market rally in 2023

The stock market continues to see sizeable moves each day and each week. If a sustainable recovery occurs with ASX shares, then I think there are some names that could do very well.

While not every business may go up in the S&P/ASX 200 Index (ASX: XJO), there are some names that could achieve market-beating returns in 2023, after a punishing year in 2022, even if they don’t recover all of the lost ground.

If something drops 50% from $100 to $50, a recovery to $75 would be a rise of 50% from that low level.

Here are three names that have been hit hard, which I believe can do well, particularly if the ASX share market does rise.

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is a leading online retailer of furniture and homewares. Over the past 12 months, the Temple & Webster share price has fallen around 55%.

It has suffered from the weak investor sentiment surrounding both ASX growth shares and ASX retail shares.

The FY23 first half is cycling against COVID-19 lockdowns in the prior 12 months, which was a boost for online shopping. So, the upcoming result may show a reduction in sales.

However, the company is hoping and expecting to return to double-digit revenue by the end of FY23.

The company is investing heavily to improve its offering, including an AI interior design service as well as augmented reality so that customers can ‘see’ the product in their space.

As the company grows, it’s expecting to see scale benefits, which can help profit margins.

Temple & Webster says that its total addressable market is more than $30 billion, now that it’s expanding in the home improvement category (which includes tools and equipment, paint and supplies, plumbing fixtures and so on).

There is potential for online penetration of shopping to continue to grow. In 2021, the Australian online market penetration of furniture and homewares was somewhere between 15% to 17%, while in the UK it was between 28% to 30%.

Reece may be best known as a bathroom and plumbing supply business in Australia. But, it also has growth plans in a number of different areas.

It has grown into the ‘sun belt’ of the US. The ASX share has acquired a Reece-like business in the country, so it can benefit from organically expanding that business, as well as the population growth those states are seeing.

Plus, Reece is becoming increasingly involved in infrastructure, such as large-scale water systems. The company also has an HVAC segment, which supplies mechanical services, air conditioning, spare parts and heating and cooling.

The Reece share price is down by around 50% over the past 12 months. While households may buy fewer bathroom products in Australia and the US in 2023, I don’t think there is going to be a large, permanent decline in demand to anywhere near that level.

According to Commsec, the Reece share price is valued at 22 times FY23’s estimated earnings.

Pinnacle Investment Management Group Ltd (ASX: PNI)

Pinnacle is a business that’s heavily involved in funds management. While it’s not doing any stock picking itself, it has invested in a portfolio of funds management businesses.

It aims to identify quality managers and help them start their own business, and take a stake of that management business. Some of the managers in the current portfolio include Antipodes, Coolabah, Metrics, Plato and Spheria.

Pinnacle can help the managers with seed money, legal, back office tasks, distribution services and so on.

Pinnacle has been hurt by the decline in the share market, with the fund managers’ funds under management (FUM) taking a hit. This in turn then hurts the profitability which can affect investor optimism about profit generation.

However, I think that a recovery of the share market would be a very helpful boost for FUM. It could also mean that people are willing to invest with fund managers again.

After the 42% fall over the past year, I think it looks much better value. According to Commsec, it’s valued at 23 times FY23’s estimated earnings.