Today's 3 Picks: GE, MET, AGM

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.

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.