Would you buy a share that has halved in price? Now if you were in a supermarket you would jump at bagging the latest half-price offers, but in the stock market people look at half-price shares with suspicion.
They say "never catch a falling knife", because a share that has fallen may just keep on falling. The key is telling where the bottom is, and judging this is more an art than a science. But judge it well and you might just bag yourself a bargain.
Here I have picked three falling knives that could be close to the bottom.
We have written before about Admiral Group. The company encompasses several motor insurance brands including Admiral, Elephant and Confused.com and insures 10% of cars in the UK.
Why has the share price fallen to earth? Well, as far as I can see, it is a growth stock whose growth has slowed.
The share price rocketed from the 2004 flotation price of 275p to £17 in early 2011 as business boomed. The firm has benefitted from the rapid growth in internet-based insurance and price comparison websites.
And the thing is, the company is still growing, as the price comparison market has continued to expand. Admiral's 2011 pre-tax profit is likely to be 10% higher than last year's, and it has grown the number of vehicles insured by 13%.
In that new reality, Admiral, at its current price of 911p, sits on a forward P/E multiple of 11, with a rather tasty forecast dividend yield of 9% (although it does have a generous dividend policy compared to others in the sector). Forget the past. In this new reality, the company looks cheap.
Technology company Inmarsat works in the field of global mobile satellite communications. It is a strong business with good fundamentals, and the company is continuing to grow.
In fact, Inmarsat's results for the first half of 2011 were impressive, with total revenue up 20% and pre-tax profit up 68%. The only worry was that the maritime business, which is at the core of what this firm does, was flat and appeared to have stopped growing.
I think it is hard to say the maritime business has gone ex-growth from just one set of results, but that was enough to send the shares, which had been on a downward path anyway, plunging even further.
Whilst it is probably true to say that this company was -- in the past -- a tad over-rated, the steep share price falls mean it is now much better value.
The share price peaked at 840p in mid-2010. It now stands at 438p, putting it on a forward P/E ratio of just 8, with a prospective dividend yield of 5.9%.
Even if we assume the worst, and Inmarsat's growth really is slowing, this still looks like a stonking bargain to me.
If you thought that Borat was the only good thing to come out of Kazakhstan, you've obviously never heard of Kazakhmys . This company's biggest business is copper mining, but it also produces zinc, silver and gold.
Kazakhmys has ridden the wave of the copper boom, and its profits have soared. In the depths of the recession in 2009, it made a net profit of £474 million, which went up to £886 million in 2010, as the world economy recovered and commodities resumed their upward trend. Earnings for 2011 are predicted to be even higher.
Yet the share price, which went as high as 1,640p at the beginning of this year, has almost halved, presumably on fears of a renewed downturn, and that the commodities boom will run out of steam. At the current price of 956p, its forward P/E ratio is a mere 4.9.
What is the downside? Well the copper price recently has been falling, and, as well as this, Kazakhmys sells half its production to China, so a hard landing in that neck of the woods could have a major impact on the company.
And one more negative is that the share doesn't pay much of a dividend, with a forecast yield of just 1.9%.
Despite these minus points in my mind this company looks too cheap. If you believe, as I do, that the commodities boom still has momentum, then the three shares are definitely worth a closer look.