Brokers Halt Coverage of Some Web Stocks

Wall Street is running away from online stocks now that the air has been let out of the Internet bubble.

Merrill Lynch & Co. (MER) analyst Henry Blodget said Wednesday he won’t publish research anymore on CMGI Inc. (CMGI), which gained a penny to $2.95, and IVillage Inc. (IVIL), which rose 11 cents to $1.52. Prudential Securities Inc. dropped coverage of E-Trade Group Inc. (ET), which fell 2 cents to $6.35.

Securities firms no longer have much to gain from following online stocks: Many Web companies no longer can sell stock or bonds, so there are few opportunities for investment banks to earn underwriting fees. And investors have no appetite for buying the shares, with many of the stocks down 90% and some companies out of business, so trading commissions have dried up.

Analysts have a hard time recommending “a company that has little prospects of earning any money and selling at a few hundred times revenue,� said Joe Williams, a money manager at Commerce Bank Investment Group. “It’s embarrassing to continue to have a ‘buy’ and have it drop 80%.�

Blodget also halted coverage on Internet search service LookSmart Ltd. (LOOK), which fell 2 cents to $1.16, and online grocer Webvan Group Inc. (WBVN), which slid a penny to 8 cents. The companies he stopped following all trade at less than $3 a share and have fallen more than 98% from their highs.

Merrill and Prudential aren’t the only firms shying away from the former darlings of Wall Street.

Credit Suisse First Boston and Thomas Weisel Partners are among others that have ceased covering Web firms including ECollege.com (ECLG), Beyond.com Corp. (BYND) and Source Media Inc. (SRCM) in recent months.