“Friedman’s Inc. became a Wall Street orphan last year when ABN Amro Bank NV, the only major financial firm to publish research on the jeweler’s stock, closed its U.S. stock-analysis operations,” writes Susanne Craig in today’s Wall Street Journal.

“But Friedman’s didn’t go begging for other research coverage — it went out and bought some.”

“The small Savannah, Ga., firm turned to J.M. Dutton & Associates, which for a flat annual fee of $25,000 will publish research on almost any publicly traded company. Founder John Dutton says he doesn’t guarantee positive ratings, though 86% of his firm’s clients that are rated receive either ‘buy’ or ‘strong buy’ ratings or some similar variation. And clients like Friedman’s say they don’t mind that it looks like they are paying for bullish coverage. Says Friedman’s Chief Executive Officer Bradley Stinn: ‘We just want people talking about us.’ “

“Critics say investors should take such ‘bought’ coverage with a grain of salt. ‘It’s a lot like using an online dating service — you wonder what is wrong with them,’ says Henry Hu, a corporate and securities law professor at the University of Texas. ‘You don’t see Cameron Diaz putting herself online to find a date.’ “

“It’s a fact of life on Wall Street. With 6,384 publicly traded companies on the Nasdaq and New York Stock Exchange alone, you need research analysts to cut through the clutter and get the word out to investors. But more companies are being shut out. Wall Street research departments are being pared as firms struggle amid falling revenue and regulatory overhaul that no longer will allow them to pay for research with investment-banking revenue. During the past two years, research coverage for U.S. companies dropped about 20%, to 4,189 firms, according to Multex Data, a research firm.”

“Figures tracked by the Nasdaq Stock Market, where many small stocks trade (as well as some of the largest ones), show that 44% of its 3,611 companies have no analyst coverage at all, and an additional 14% are covered by just one analyst. For instance, Goldman Sachs Group Inc. covers 1,848 companies, down 17.7% from September 2001. And Deutsche Bank AG recently discontinued research coverage of Charles Schwab Corp. because an analyst left.”

“Firms that get paid to publish reports have been around for years. And most independent research firms generate cash by selling their stock analysis to big institutional clients. But more companies seem to be willing to pay for research today as Wall Street’s coverage universe shrinks.”

“Taglich Brothers Inc., which has an investment-banking arm as well as individual and institutional clients, began offering companies research for a fee in 1999. All clients pay a $1,750 monthly fee, plus a $5,000 retainer. Its client base has grown from just 15 clients in 1999 to 50 today.