ANALYST WATCH: Breaking up Wall Street style

COMMENTARY--Analysts love to talk about the companies they follow when the market's on fire and their stocks are on the rise. But when the company starts to falter, they're usually the first to abandon the companies that made their clients and often their firms a ton of dough.

This is no startling revelation or expos?. It's just business and human nature working together to demoralize a company that's already on its back.

This week, CS First Boston dropped coverage of Beyond.com (Nasdaq: BYND) and Ventro (Nasdaq: VNTR), two stocks that probably should have been dumped long ago.

Believe it or not, Ventro, which provides technology and services to business-to-business marketplaces, was trading at $243.50 a share last February. On Friday, it was off 19 cents to $1.25.

Beyond.com, which also supports e-commerce markets and online stores, trades at 41 cents a share.

Both companies are losing money at an alarming pace.

Beyond.com dropped $20.8 million, or 49 cents a share, in its latest quarter while Ventro lost $451.6 million, or $9.93 a share, in the same period.

Beyond.com, which is on the verge of being delisted from the Nasdaq exchange, was granted a hearing this week to stay on the board. But unless the stock somehow gets above $1 a share between now and the March 29 hearing, it's probably out of there.

Simply put, these two companies have only lost money in their public life. They will continue to lose money for the foreseeable future. And because the stocks are trading at such pathetic levels, there's no audience in the institutional community that these analysts serve.

"In this case we were neither advocating or avidly following either stock prior to dropping coverage," said CS First Boston. "We stopped covering them because they had fallen to a level where there was little or no investor interest."

But just 12 or 18 months ago, these analysts couldn't say enough good things about the stocks. The potential of the Internet and e-commerce, they said, would outweigh the short-term losses these companies were absorbing. They've got great technology, some would argue, and the management team is sound.

Well, it never materialized and now companies that had eight, 10 or even 15 brokerage firms covering their stock have been abandoned, left to rot in anonymity while the analysts move on to the next flavor of the month.

I don't have problem with that. There's no room for sentimentality in the stock market. Perform or perish.

However, these guys usually don't even have the guts (substitute your body parts of choice) to tell reporters why they dropped coverage of a stock. After touting a company for most of its public life only to dump it at its lowest point, you'd figure they'd have some semblance of an explanation.

Suddenly they turn mute.

Dave O'Neill, an analyst at William Blair & Co., is listed as an analyst officially following Ventro according to First Call.

O'Neill said he was covering the company but "not really," clearly a euphemism meaning that William Blair is still covering the company but O'Neill has given up hope.

"I don't want to comment about it," he said. "I really wouldn't have any comment for you, buddy. Good luck."

Reporters get that kind of thing all the time, but I'm wondering what has O'Neill and other analysts tongue-tied all of the sudden. Back when these stocks were jumping, they had lots to say.

Is it that they're afraid they might offend the companies they've turned their back on? Do they feel guilty or foolish?

Derek Brown, an Internet analyst at WR Hambrecht, offered some insight into this phenomena, but from a purely theoretical view considering he has yet to drop any of the stocks he covers.

"At the end of the day, there's no clear formula" for dropping a stock, he said. "There could be 10 different reasons why an analyst will drop coverage on a stock at anytime."

That may be true but you don't see any analysts dropping coverage of Cisco Systems (Nasdaq: CSCO), Sun Microsystems (Nasdaq: SUNW) or Brocade Communications Systems (Nasdaq: BRCD) even though all three of these companies recently have issued dismal outlooks for the next several quarters.

Brown said analysts typically drop coverage of a stock when there's "very little confidence in its future" or when the analyst wants to pursue another sector or industry. He rattled off several more reasonable explanations but none as convincing as the obvious.

"When a company is blowing out top- and bottom-line numbers, there's going to be coverage from the largest investment houses down to the smallest firms," he said. "When a company underperforms, it's very difficult for a company to get any attention."

More than a few analysts declined to comment on the record about this process.

One who didn't want to be identified was honest enough to admit that $1 or $2 stocks don't offer much return on the investment of their time, regardless of a company's technology or the tremendous initial public offering it may have enjoyed.

"We're just as fickle as the investing public," the analyst said. "No one likes to admit that they were wrong. Dropping coverage of a stock, with very few exceptions, means that an analyst made a mistake. Who wants to admit that?"