What Shares To Buy Now

Investors are often warned to be wary about catching falling knives (shares whose price has dropped significantly in a short period of time). But what should investors do if the entire cutlery tray rather than a solitary knife has fallen?

Over the past fortnight, London shares have taken a tumble over worries that high energy costs and soaring commodity prices may fuel inflation. Additionally, a weak US currency is raising concerns that businesses dependent on earnings denominated in dollars may be hurt.

Some of the companies that have been worst hit include miners because commodity prices are generally quoted in dollars. For instance, since 8 May, Randgold Resources (LSE: RRS) has lost 27%, Vedanta (LSE: VED) is down 26% and Antofagasta (LSE: ANTO) has fallen 19%. Meanwhile, crude prices, which are also quoted in dollars, have impacted oil explorers. Consequently, Tullow Oil (LSE: TLW) and Dana Petroleum (LSE: DNX) have slipped 19%, and Venture Petroleum (LSE: VPC) is 19% lower.

But canny investors will have noticed that many companies that are not directly linked to either commodity prices or the dollar have been caught up in the sell-off, too. (Of course, it can be argued that everything is affected by high commodity prices -- even the pennies in your pocket!) Nevertheless, now may be a timely moment to review the prospects of companies that may have been cast aside unnecessarily.

For example, South African insurer Old Mutual (LSE: OML) is 15% cheaper today compared to a fortnight ago. Earlier this month Old Mutual, which also has operations in Sweden, the US and Britain, reported strong trading across its various divisions. And the shares do not look expensive at 8 times earnings. Bradford & Bingley (LSE: BB.), which is valued at 12 times earnings, does not look pricey either after its shares tumbled 13%. In April, the mortgage lender said it is comfortable with meeting profit forecasts following a positive start to the financial year.

Elsewhere, SABMiller (LSE: SAB) is down 12% on worries that soaring aluminium prices may impact the cost of beer cans. This has raised concerns that its US operations may be adversely impacted -- it seems that American drinkers like to sip their beer from cans rather than glass bottles. But let's not forget 83% of the brewer's profits are derived outside of America. Sticking with beverage cans, Rexam (LSE: REX) is now 12% cheaper on worries that the its recent price increases may have an impact on sales. However, earlier this month Rexam indicated that volume gains in the US, Europe and South America has been reflected in solid sales growth.

It just goes to show that markets tend to overreact, and the exaggerated falls in the last fortnight is plain for all to see. However, it is worth bearing in mind that the key to successful investing is to buy shares when they are cheap, not when everyone is clamouring for them.

> When To Catch A Falling Knife