GE: Stock Does Electric Slide

Shares of General Electric (GE) dropped sharply Wednesday as concerns about the credit crunch grew and analysts revised their earnings forecasts, but the big drop was halved in mid-afternoon after the company announced a $3 billion investment from billionaire Warren Buffett.

General Electric also announced a capital raise of "at least" $12 billion. The common stock offering will be priced before the market open Thursday, the company said.

The massive conglomerate warned last week that third-quarter earnings would be worse than expected when it reports on Oct. 10, so jittery investors were already primed to sell off when Deutsche Bank analyst Nigel Coe cut profit estimates by 9% in a Wednesday report. That was followed by mounting concern over widening credit-default-swap spreads, which raised the likelihood that financing costs will get more expensive and eat into margins.

Coe cut his full-year earnings estimates to $2 a share this year and $1.95 next year, below the Street consensus of $2.06 and $2.05, respectively.

"Our adjustments largely reflect deterioration at GE Capital -- driven by tighter credit markets, asset shrinkage and debt pay-down -- but we also eased back our industrial assumptions," he wrote. "Valuation analysis indicates that GE is fairly valued on an absolute basis but expensive on a relative basis."

If Coe's concerns were broadly based, a report from Tradition Asiel Securities was more tightly focused on the obstacles GE Capital faces in the absence of an end to the ongoing credit crunch, which will still cut into profits at the company's finance arm.

"Financing costs remain prohibitively high, forcing these operations to offer credit at a potential loss or risk losing a potential sale," according to a quote from the research note by Reuters. "We believe revenues or financing costs will ultimately be impacted and have a negative effect on earnings."

David Kotok, chief investment officer at Cumberland Advisors, wrote Wednesday that while current developments aren't reassuring, they won't continue indefinitely.

"There are many signs that a bottoming process is now underway. And credit spreads have already widened. They are at levels where markets are seized," he wrote in a Wednesday commentary, where he cited the jump in GE's credit default swap pricing. "We have reached the point of reversal because it is the only remaining option."

The Bottom Line: Buy
The market is jittery and GE is a long-term holding. Keep looking for dips that offer discount pricing for steady investors.

MetLife: Insurers Lack Assurances

Insurer MetLife (MET) took a sizable share-price hit Wednesday as widening worries about rival Hartford Financial Group (HIG) knocked down stocks throughout the insurance sector.

Keefe Bruyette & Woods analyst Jeffrey Schuman wrote Wednesday that Hartford, which had a capital margin of about $1.5 billion on Sept. 3, when CEO Liz Zlatkus spoke at a conference, has been pummeled by the meltdown in financial-services stocks. It's been a bad time to be holding shares of Fannie Mae (FNM), Freddie Mac (FRE), Lehman Brothers, American International Group (AIG) and Washington Mutual, all of which have failed, been nationalized or bailed out at great cost to shareholders and debt holders.

"Since then, HIG has likely experienced credit losses from GSE preferreds, and LEH, AIG and WM debt," Schuman wrote. "We estimate realized losses or impairments on these credits in the range of $700-$800 million. In addition, we expect a [deferred acquisition cost] write-down due to the equity market at or above the high end of the $330-$640 million guidance range."

But MetLife has troubles of its own as well. Shares took their sharpest plunge in eight years on Monday after the rating agency Fitch noted that mortgage-related securities losses would keep hitting the entire sector. MetLife had reported falling profits in the last two quarters.

"The dramatic downturn in the U.S. housing market, which has led to significant losses to mortgage-related investments, has prompted a financial crisis,'' a Fitch report said. "Life insurers are experiencing a significant deterioration in investment results.''

The failure of the House of Representatives to pass a proposed bailout package for the financial-services industry also added to market worries affecting insurance stocks across the board.

Bottom Line: Buy
If you believe Congress will succeed in passing some sort of legislation in response to the crisis, it almost doesn't matter what that is in final form, given the extent of investor panic. Markets crave stability and predictability, and even the idea that a rescue package exists will give the insurance sector a lift.

Federal Agricultural Mortgage: Farmer Mac Is Back

Federal Agricultural Mortgage (AGM), rural cousin to recently nationalized mortgage financers Fannie Mae and Freddie Mac, saw shares shoot up as much as 60% Wednesday after it announced it had secured vital financing and ousted its chief executive.

Lowell Junkins, acting chair of what's commonly referred to as Farmer Mac, said the $65 million deal with a consortium of banks allowed the company to restore its capital position and to meet regulatory requirements. It lost tens of millions of dollars through investments in Fannie Mae and Lehman Brothers, the bankrupted investment bank.

Between Sept. 10, when the stock closed at $27.93, and Friday, news of the investment losses helped drop shares 90%.

"This capital infusion, made by investors who know us well with the full support of our regulator, meets our commitment to satisfy regulatory requirements and support our plans to further our congressional mission for the benefit of farmers, ranchers and rural residents," Junkins said in a prepared statement. "We appreciate the confidence these investors have shown in the strength of our core business.

News that Farmer Mac, formed in 1988 to buy mortgages and other loans to farmers and ranchers in rural areas, had raised $65 million from a group of small banks in a preferred stock deal was made in conjunction with word the government-sponsored entity had replaced President and Chief Executive Henry Edelman.

Michael Gerber, CEO of Farm Credit of Western New York, assumes Farmer Mac's top job effective immediately, the company said. He'll also retain his current position with the Batavia, N.Y., association in the Farm Credit System.

Edward Timmons, a Sterne Agee analyst who covers Utah-based Zions Bancorp. (ZION), a member of the consortium, says the preferred stock buyers didn't assume a great deal of concentrated risk, and estimated the bank had invested between $10 million and $15 million.

While the transaction was a dramatic development for the rural mortgage financing company, which traded at more than five times its normal volume Wednesday, the deal was, well, small potatoes.

"We're talking about $700 billion in Congress, and this is $65 million," Timmons says.

Bottom Line: Sell
If you owned this stock before it fell off a cliff, then suit yourself if you believe it'll return to its steady trading band. If Farmer Mac is new to you, it's best not to mess with it in the current crisis.