June 27, 2001 11:55 AM PDT

Blodget drops four dot-coms

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Merrill Lynch analyst Henry Blodget, one of the more high-profile analysts covering dot-com stocks, said he has dropped coverage of four companies as he continues to "refocus" on the sector.

Blodget, who made his name during the dot-com boom with a well-publicized $400 price target for Amazon.com, has dropped coverage of Webvan, CMGI, iVillage and LookSmart.

Merrill Lynch would not comment on the dropped coverage beyond the reports, which simply state that the companies are being dropped "in conjunction with refocused coverage of the sector." Blodget follows several dot-com companies, including Amazon, eBay and Yahoo. He also covers Microsoft.

It's not unusual for analysts to stop covering underperforming stocks. While the companies Blodget shed were among the more well-known dot-coms, all four saw their stocks deteriorate in recent months.

The shares of online grocer Webvan, which at the time of its initial public offering had a market capitalization of $8.45 billion, were trading at about 9 cents on Wednesday.

iVillage, a portal aimed at women, which last week announced it was laying off nearly half its staff, was trading at $1.46 on Wednesday.

CMGI, which became well known by backing numerous dot-coms and will even have a football stadium named after it, has fallen from a 52-week high of $50.69 to about $3.

And search engine LookSmart, whose CFO resigned in March, has fallen from a 52-week high of $25.50 to $1.18.

There are several reasons analysts lose interest in poorly performing stocks. One factor is the old rule stating "if you can't say anything nice, don't say anything at all."

"You want to follow companies where hopefully you can say some good things and get people interested to buy them. The better opportunities are in companies that are growing," said Chuck Hill, director of research at First Call.

Analysts may continue coverage of a company they don't recommend if it's a major player in its market, but for smaller companies, they say it's not worth their effort.

Analysts also take a look at what their clients are interested in buying. Many institutional buyers have rules prohibiting them from purchasing so-called penny stocks, with values less than $5.

And if a stock has sunk so low that it's in danger of being de-listed, that's a red flag, analysts said. "If we know in six months it's most likely not going to be here," it's not worth the trouble, said one analyst who asked to remain anonymous.

 

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