W.R. Hambrecht's

Derek Brown initiated coverage with a buy rating Tuesday on two Internet companies he feels have a decent shot at survival:

FreeMarkets

(FMKT)

and

Homestore.com

(HOMS)

.

Both companies are involved in the creation of online markets. FreeMarkets uses the Web to help make a market where buyers and sellers can cut out the middleman. Homestore.com owns a trio of sites that cover a wide range of real estate needs:

Realtor.com

lists houses for sale,

HomeBuilder.com

connects contractors with vacant lots, and

CommercialSource.com

helps businesses find a home.

Brown put a $20 price target on FreeMarkets, which was down 38 cents, or 3.4%, to $10.81 in recent

Nasdaq

trading. He also said he liked the company's recent purchase of private software maker

Adexa

for 17.25 million shares in stock -- about $193 million based on Monday's close.

"As a testament to its effectiveness, FreeMarkets has now conducted more than 9,200 online markets for over $14 billion worth of goods and services, generating estimated savings of over $2.7 billion for its blue-chip customers," he wrote to investors. "Further, the company is led by a strong, seasoned management team, and presents a business model characterized by fast-growing, (relatively) predictable revenue streams and emerging signs of operating scalability."

That said, it's worth noting that FreeMarkets posted a loss in the fourth quarter, and the loss was wider than in the previous year.

Brown put a $40 price target on Homestore.com, something of an analyst darling lately. Shares were up 6 cents, or 0.2%, to $24.75 in recent trading. About a month ago, the company closed a deal with rival

Cendant

(CD)

, owner of

Century 21

,

Days Inn

and

Howard Johnson's

, to purchase its

Move.com

Web site. The deal further consolidated Homestore's move into online real estate.

At the time, analysts cheered, with

Morgan Stanley Dean Witter

,

Salomon Smith Barney

,

Robertson Stephens

and

Merrill Lynch

all raising their earnings estimates, citing the Move.com acquisition as a major factor. Even better, the company's fourth-quarter earnings beat expectations.

"We believe Homestore.com is ideally positioned within the $5.4 trillion worldwide residential real estate market," Hambrecht's Brown wrote. "Furthermore, we think the company's model is extremely attractive, offering multiple high-margin revenue streams, relatively high levels of visibility, and tremendous operating leverage."