THE DAY AHEAD: Analysts sing value tune for Internet Capital Group

COMMENTARY -- Business-to-business incubator Internet Capital Group (Nasdaq: ICGE) has pared its workforce, portfolio and ambition as the market for initial public offerings has dried up. Meanwhile, investors and analysts have abandoned shares of this former Wall Street darling.

So why are some analysts calling ICG a value?

Part of the fascination with ICG is the neverending -- sometimes misguided -- optimism of analysts. But most of the value chatter is attributed to the "if" factor. If the Nasdaq rebounds in 2001, if IPOs make a comeback and if ICG can weather the current tech slowdown, there are compelling reasons why ICG could rebound.

One issue for ICG is valuation -- a tricky topic since there are no earnings and the company rises and falls with the value of its privately held portfolio companies. ICG shares are hovering around $6, down from a high of $212.

Analysts contend that ICG looks cheap based on the underlying value of its core companies in its network such as ICG Commerce, AssetTRADE, Logistics.com and RightWorks. If those four companies go public eventually and garner a market capitalization of $400 million, you've nearly equaled ICG's current valuation.

In a research note, David Farina, an analyst at William Blair, said he was heartened by the light crowd at ICG's recent analyst meeting. "Attendance at the meeting was light, but because of the stock's position we were not surprised," said Farina. "We took this as a good sign that most of the larger brokerage firms that were all over the stock in the $200 range are now running for cover at $10, which is where we believe the real money is made."

And Farina isn't alone. Many analysts are calling ICG a value play even though they officially rate ICG a "neutral." ICG shares aren't going to be in favor any time soon, but when the IPO market cheers up, the company will have a handful of well-developed companies ready to hit the market.

When ICG reported its third quarter earnings, it said it would focus on 15 companies that hold a top market position, solid management and positive cash flow prospects. Of course, ICG had to focus to conserve cash, but analysts said it's a blessing in disguise.

ICG is at a turning point where it has become more prudent with its funds and will invest most of its money ($514 million in cash and short-term investments) on its strongest holdings. "We believe that longer-term value investors may want to revisit ICG given its 15 core private holdings, adequate cash position and tremendous market opportunity," said Michael Legg, an analyst at Jeffries & Co.

Here are the talking points: