Investors pummeled shares of General Electric (NYSE:GE) yesterday, with the stock reaching levels not seen since 1991. Media reports cite two principal explanations for the drop: concerns that the financial/industrial conglomerate may have to raise capital on behalf of its GE Capital unit, and the possible loss of its AAA credit rating. I've written recently about the risks relating to GE Capital, but this drubbing looks a bit overdone.

What's a AAA rating worth?
In an email to investors, the company denied that it was preparing to raise capital. It's also far from certain that any downgrade would raise GE's borrowing costs. According to credit rating agency Moody's (NYSE:MCO), GE's bonds have traded at yields consistent with a rating below triple-A for the past six years. The implied rating is actually five rungs lower, at A2.

Still, A2 is uncomfortably close to the Aa3 threshold, below which GE would need to post $8 billion in additional collateral -- an immediate (and painful) economic impact.

In general, I'm no fan of conglomerates, particularly those dependent on a sprawling lending arm for much of their profits. Furthermore, I think it's now likely that GE will lose its AAA rating, and highly unlikely that GE Capital will earn $5 billion this year, as the firm projects.

Lest there be any confusion among investors…
All the same, GE is not a Citigroup (NYSE:C), much less an AIG (NYSE:AIG). I don't think Warren Buffett's Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) would have made a $3 billion preferred share investment in GE if it were. It's not clear to me that today's share decline was driven purely by fundamentals. It may also owe something to credit default swaps on GE debt, since the cost of default insurance soared to record levels yesterday.

Although GE's shares look undervalued at this stage, trading at less than seven times the lowest analyst estimate of 2009 earnings per share, I'm not comfortable with the breadth and opacity of its financial exposure, nor the range of outcomes in this situation. For that reason, I'd classify GE common shares as a speculation. If you're into gambling, and comfortable with considerable risk, feel free to take a look.

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Fool contributor Alex Dumortier, CFA has a beneficial interest in Wells Fargo, but not in any of the other companies mentioned in this article. Moody's and Berkshire Hathaway are both Motley Fool Inside Value selections and Motley Fool Stock Advisor recommendations. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.