Best UK shares to buy in May 2023

As spring brings the sunshine, the UK investing environment seems to be in a volatile mood. The FTSE 100 started the year at 7,554 points, rose to a record 8,014 points in mid-February, and has since fallen back to 7,634 points.

There are complex reasons for this volatility, but a significant source is the debate over whether CPI inflation has peaked — despite rising slightly to 10.4% in February.

The Office for Budget Responsibility is predicting this crucial measure will fall sharply to just 2.9% in H2, and the collapses of Silicon Valley Bank and Credit Suisse may have been enough to check the pace of rate rises across the pond.

However, OPEC has declared oil production cuts, which may keep inflation higher for longer. While energy bills are still predicted to fall significantly later this year, this is the type of curveball that could see further monetary tightening.

The UK’s Monetary Policy Committee remains divided on what action to take, as the lag effect means rate rises are typically not felt for months. Comments from the likes of Andrew Bailey, Huw Pill, Catherine Mann, and Silvana Tenreyo show that members are engaged in lively debate — which of course should be encouraged behind closed doors, but only generates more uncertainty in public.

And if there’s one thing all economists can agree on, it’s that uncertainty is a stock market depressor.

Meanwhile, the most recent budget will see corporation tax for larger firms rise from 19% to 25% in the new tax year, while the popular super-deduction is being scrapped in favour of a less generous capital allowance.

Volatility, high inflation, and arguably a less friendly investing environment has left some of the UK’s larger companies casting their eyes abroad. AstraZeneca is building its new state-of-the-art factory in Ireland, ARM and CRH are going to list in the US, and even Shell is considering moving its primary listing stateside amid onerous windfall taxes.

Meanwhile, seemingly endless public sector strikes remain ongoing, with employees holding out for serious pay rises after years of real terms cuts, and government refusing to countenance this option for fear of feeding the wage-spiral inflationary monster.

Then there’s the long-running macro factors — pandemic era debts, supply chain problems, Sino-US tensions, and the Ukraine War — all of which continue to generate instability.

This volatility is creating a higher-risk, higher-reward environment — a gift for UK share investors with a reasonable risk appetite.

Best UK shares

1. Legal & General (LON: LGEN)

Legal & General shares have fallen by 11.8% over the past year to 241p, but this quality FTSE 100 company now boasts an index-beating yield over 8%.

Outgoing CEO Nigel Wilson enthuses that ‘our diversified and highly synergistic business model continues to deliver significant benefits. Our balance sheet is strong and highly resilient.’

March’s FY22 results saw operating profit rise by 12% to over £2.5 billion, with a return on equity of 20.7%. The crucial Solvency II coverage ratio stands at 240%, a sizeable increase on the 187% of 2021. And the full year dividend rose by 5% last year to 19.37p.

Over the longer term, it’s worth bearing in mind LGEN’s market position. The FTSE 100 business has over 10 million customers and exceptionally strong brand recognition, meaning it should be able to grow market share even in the highly competitive financial sector.

In particular, it’s perfectly placed to benefit from the aging populations in its key markets, as they increasingly turn to pensions, annuities, and equity release products.

2. Antofagasta (LON: ANTO)

Antofagasta is perhaps one of the lesser-loved FTSE 100 miners given its concentration on copper production. This lack of metal diversification can be a weakness, but the copper supply gap could see prices surge through H2 and beyond.

Trafigura co-head Kostas Bintas recently highlighted copper ‘as the most critical metal globally given the shortage in the market’ given that the world ‘only had 3.5 days of copper stock equivalent at the end of last year.’

Meanwhile, Goldman Sachs commodities head Jeff Currie notes that ‘on copper, the forward outlook is extraordinarily positive. We’ll be at the lowest observable inventories that have ever been recorded at 125,000 tonnes.’ The analyst has a long-term price target of a whopping $15,000/tonne.

Antofagasta shares have slipped since February, after full-year results saw copper production fall by over 10% to 646,200 tonnes due to droughts and pipeline leaks at its Chilean operations. Together with lower copper prices last year, pre-tax profit fell by 26% — but this could leave a strong entry point for long-term investors.

3. Centamin (LON: CEY)

Centamin continues to make this list for its solid fundamentals and the strong gold price. The FTSE 250 miner is the 100% owner of the flagship Sukari gold mine in Egypt, at which it has commissioned a new plant and a 36MW hybrid solar farm to help power operations — the largest solar farm in the world to be used to help power a gold mine.

It’s also working on initial studies on the Doropo project in the Ivory Coast, which could act as a medium-term share price catalyst.

Recent full-year results saw the FSTE 250 gold miner generate revenues worth $788 million from selling 436,638oz of gold at an average price of $1,794/oz. For context, gold is now at $2,020/oz, and may rise higher if central banks pause or pivot on tightening monetary policy.

Centamin mined 440,974oz of gold in 2022, 6% more than in 2021. And it generated an adjusted EBITDA of $319 million on an operating margin of 40%, yielding pre-tax profits of $171 million. Importantly, it holds $157 million in liquidity, leaving it well capitalised for further operations.

2023 production guidance is for between 450,000oz and 480,000oz of production. Assuming the gold price remains elevated, May could be an excellent entry point — CEY shares are currently down by 9.3% year-to-date.

Of course, if more quantitative tightening than expected occurs, then gold, and by extension CEY shares, could fall through H2.

But there is no reward without risk.

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^*Based on revenue (published financial statements, October 2022)