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As we say goodbye to a volatile financial year, most investors are glad it's over and can't wait to say hello to FY23. Markets will be hoping that this new financial year will bring about calmer trading conditions with fewer geopolitical tensions and no devastating pandemics.

As we say goodbye to a volatile financial year, most investors are glad it’s over and can’t wait to say hello to FY23. Markets will be hoping that this new financial year will bring about calmer trading conditions with fewer geopolitical tensions and no devastating pandemics.

Central banks will still be very much focused on lowering inflation, but hopefully, it will not be as dire as first thought. Much of the weakness seen last month can be attributed to tax-loss selling. If history is anything to go by, July is usually one of the best performing months of the year, as investors buy beaten-down stocks in hope of a bull-market recovery.

According to UBS, on average July is the fourth-best performing month of the year. With that in mind, let’s look at three beaten-down stocks that are ripe for recovery, according to the broking houses.

1. Airtasker (ASX:ART) shares are down 77.5 per cent in the year to date. The online marketplace for local services connects customers with community members able to complete tasks to earn money. During Covid the gig economy app helped build a thriving marketplace. ART acquired services platform Oneflare for $9.8 million. But Airtasker is a loss-making growth company, projecting profitability sometime in the future. Unfortunately, the rising inflation and interest rates scenario caused a change in investor sentiment, with the market refocusing on profitable companies that were growing their cash earnings right now. Airtasker fell victim to the rotation out of growth assets. The savage sell-off is well overdone, and any reversal will see quite a quick recovery according to Morgans, which has an Add recommendation with a target price of $1.15.
2. Pendal Group (ASX:PDL) shares are down 44.7 percent in the year to date. The active fund managers suffered savage sell-offs due to poor portfolio performance as the volatile economic conditions saw a rotation out of growth and tech stocks and into value stocks. Many fund managers have underperformed their respective benchmarks, with passive ETFs outperforming. A good example is Magellan Financial Group (ASX:MFG) which suffered a 76.3 percent sell-off due to underperformance. UBS has a Buy recommendation with a target price of $6.45. The broker sees valuation appeal, an attractive dividend and the potential for a recovery rally when markets return to normal.
3. Xero (ASX:XRO) – Shares are down 43.4 percent in the year to date. The cloud-based accounting software company has suffered quite a brutal sell-off, much of it blamed on concerns surrounding wage inflation. Due to the tight labour market, the market believes the firm will find it hard to find the same talent at the same wage-price. The other factor is the continuing headwinds from rising interest rates triggering a sell-off in the tech sector. While its recent results were strong, XRO missed some brokers’ high expectations. Goldmans has a Buy recommendation with a target price of $118.00 (current price $76.96). The broker says Xero can easily pass-on higher wage costs with increases in prices that the customer will pay. The firm has quite a sticky client base, so price increases shouldn’t be a problem. Goldman is confident that Xero can execute on these price increases while preserving its existing client base.