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:







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:


lists houses for sale,


connects contractors with vacant lots, and


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


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


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



, owner of

Century 21


Days Inn


Howard Johnson's

, to purchase its


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


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."