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5 of the best UK shares to buy in August

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It’s easy to become distracted by the ups and downs of the FTSE 100 index and the wider stock market. And the news keeps coming regarding every lurch in the coronavirus infection statistics. But I reckon it’s all just ‘noise’ for investors like me to tune out when looking for the best UK shares to buy now.

I wouldn’t say the general economic headlines are totally irrelevant. They serve a purpose for me as an investor when sentiment drives share prices lower. And news can affect sentiment. But I believe one of the keys to successful long-term investing is to focus on the quality and sustainability of the businesses behind shares. Then, when negative sentiment pushes valuations lower, it may be a good time to look for the best UK shares to buy.

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Finding the best UK shares to buy

Of course, I didn’t think of that great idea all on my own! Well-known billionaire investor Warren Buffett has been talking about the technique for years. And one of his sayings is, “you pay a high price for a cheery consensus.” In other words, when the general economic news is all rosy and glowing, improving sentiment tends to drive share valuations higher.

And in “cheery” conditions like that, Buffett tends not to find the “wonderful” businesses he’s looking for selling at fair valuations. Instead, he goes shopping for stocks when the economic clouds are in the sky. Or when everyone is worried about something. Or when the consensus outlook is a bit murky. It’s under such conditions that he tends to find his great businesses trading at reasonable valuations. And he snaps them up and holds them for the long term.

When Buffett has bought well, blending quality with value, the ‘magic’ then tends to happen during his long holding period. The underlying businesses can build their intrinsic value by growing earnings, operations, and assets. And, often, stock prices rise to accommodate the progress. But on top of that, sentiment can improve over time. And investors can drive valuations higher. So, a stock once trading on an earnings multiple of around 10, can find itself becoming valued at perhaps 30 times earnings.

And those twin drivers of operational progress in the underlying business and a valuation rerating can really make a stock price move higher over time. However, such outcomes are never certain and all shares contain an element of risk. Despite me looking for high-quality businesses selling at fair valuations, it’s still possible to lose money on shares.

I’m starting my research with these

Nevertheless, I’m prepared to embrace the uncertainties of stock investing in the pursuit of long-term gains. And, right now, I like the look of stocks such as valve and actuator maker IMI and paper-based packaging manufacturer Smurfit Kappa. I’m also keen on fast-moving food goods maker Premier Foods, fresh food specialist Bakkavor, and residential property franchise business operator Property Franchise.

I could be wrong in my assessment. But I reckon all those five businesses display decent quality and value indicators. And there’s a reason in each case to expect operational and earnings progress ahead. That’s a good starting point for my further research and, for me, these five could be among the best UK shares to buy in August and beyond.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended IMI. 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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