Even though we aren’t technically in a stock market crash right now, the FTSE 100’s July performance is a good reminder of what it’s like to be in the midst of one. The index fell during the month, after two months of increase. While the fall isn’t massive, at 1%, it is disappointing at a time when there’s much lost ground to be recovered. I mean, the index is still 18% lower than the January average. But there’s an upside to this trend. As a result of it, the best UK shares are available at low prices.
What makes the best UK share
By best UK shares, I mean those that meet the following three criteria. One, they should be financially sound. Even if they are under pressure right now, like Royal Dutch Shell, for instance, their long-term credentials should speak for them. Two, they should have good future prospects, like online marketplaces such as Ocado and Rightmove. Three, their share price movements should inspire confidence. For instance, the long-term price chart of the consumer goods’ company Unilever or the healthcare provider Smith & Nephew broadly trends upwards. These stocks have been rewarding over time even though they have seen short-term fluctuations.
Ideally, the best UK shares should also have two more attributes. One, it’s a notable plus if they are dividend paying in these times when passive incomes have taken a huge hit. And two, they should be reasonably priced. And by price, I’m talking about the price-to-earnings (P/E) ratio, which allows comparison with other FTSE 100 stocks.
Shares that meet the cut
I know that sounds like a tall order. But the astute investor knows that in bad times, even the best UK shares can be found at low valuations. Buying them for a Stocks and Shares ISA at such times is the kind of move that can make you a millionaire over time. Now I know it’s not easy to time the markets. It’s just easier to buy the best UK shares, which meet the required criteria as mentioned above, and wait for them to reap investing rewards. Even if that doesn’t exactly make us millionaires at speed, it can significantly add to our wealth creation efforts.
However, if we do find ourselves catching the best UK shares at low prices, we shouldn’t hesitate to buy at such times either. The FTSE 100 index’s softening in July has created fresh opportunities to buy some of them. I’m looking closely at those that suffered most during the lockdown, like travel and hospitality companies. One example is the owner of the Premier Inn, Whitbread. It has a good track record and there’s no reason to doubt its long-term prospects either. While cyclicality is evident in its share prices, it’s still on the rising curve. And it’s still reasonably priced. Another example is a high performing company is Unilever, which incidentally, also pays dividends. There are others too, which give the investor the opportunity to make big gains starting in August.
Manika Premsingh owns shares of Rightmove. The Motley Fool UK has recommended Rightmove and Unilever. 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.