Back in 1999, the sky was the limit for companies connected to wireless --service providers, handset makers, telecom-equipment companies. Mutual fund managers hopped on the gravy train of runaway stocks such as

Nokia

(NOK) - Get Report

,

Motorola

(MOT)

and

Qualcomm

(QCOM) - Get Report

.

Then, the first shoe dropped: Unrealistic growth targets went under the knife. Then, the second shoe: The stocks started falling. Then, sadly for fund investors, the third shoe dropped: Many funds who held on too long started selling.

The past month has witnessed a resurgence in many moribund tech and telecom companies, leaving many asking: Is this rally for real? It also should be leading many burned fund managers to ask: Am I overexposed once again to bubble-like stocks?

According to research conducted by fund-tracker Morningstar for

TheStreet.com

, money managers haven't rushed headlong into wireless companies. The data only show purchases through Sept. 30, so it isn't clear yet how many bought in the past month, when wireless companies became Messrs. October. Nonetheless, the numbers show some interesting trends on Qualcomm, Nokia and Motorola. Fund ownership in Qualcomm, while down from its peaks, matches levels from fourth-quarter 1999, when the stock was completing its 2,619% one-year moon shot. Nokia, "the Dell of wireless," is still a favorite of large-cap growth funds (including Janus, even after a lot of selling). And Motorola, serial cutter of earnings expectations, is now seen by fund skippers as the sector's de facto value play.

Qualcomm: A Pricey Bet on the Next Generation

In the bizarre world of 1999, Qualcomm's stock was the most bizarro. Mutual fund managers cast caution to the wind, hitching a ride just as the stock was falling off a cliff. The number of funds owning the company went from 5% in first-quarter 1999 to 22% when the

Nasdaq

peaked in spring 2000. During the tech revival of the past month, Qualcomm's stock surged from the mid-$20s to $39.50.

Retreat From Qualcomm
The company has remained profitable in the downturn, but fund ownership has eased.

Source: Morningstar

Fund ownership has ebbed and flowed during the past few years. But Qualcomm has remained a presence in large-cap growth fund -- 172 funds owned in this year's third quarter, down about 20% from the fourth-quarter 2001 peak of 216.

That growth comes at a price: A trailing price-to-earnings multiple of 263.3 (vs.

S&P 500's

24.6), a forward P/E of 42 (S&P 500's 19.8), price-to-cash flow multiple of 37 (13.4) and price-to-sales multiple of 10.9 (1.9), according to Morningstar. Not surprisingly, value funds have shied away -- but four do own Qualcomm.

Can the company -- whose code division multiple access, or CDMA, backs wireless telephony -- justify these rich valuations? Today, Qualcomm's future is pinned on the worldwide growth of next-generation services, especially in China.

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With a $39.50 stock price, John Krause, equity research analyst for Thrivent Financial, believes much of this growth is already priced in. As a result, investors with an eye on the long term should keep a close eye on any signs that foreign-market growth can beat company expectations. Also, investors should check their mutual fund statements to see if your fund manager is jumping back on the Qualcomm bandwagon a little too hard.

One bullish sign would be "any unanticipated upside in subscribers in Asia, India and China in particular, could be a catalyst for even more upside," he said. "Also look for an increase in European market share, like Vodafone's announcement of subscriber growth. Or an increase in W-CDMA."

Many Qualcomm watchers say the stock may shift into neutral or even reverse, especially if China Unicom curtails its subsidies, which would limit the spread of the CDMA technology that Qualcomm -- and your fund manager -- are banking on.

Nokia: Can the Dell of Wireless Deliver?

Two Janus funds -- Mercury and Twenty -- still have the two biggest fund stakes in Nokia, as measured by portfolio weighting, according to Morningstar.

Finnish Strong?
Fund managers have sold Nokia steadily the past two years.

* -- In Euros.
Source: Morningstar

This says a lot about just how much Nokia the fund company owned -- it held a whopping 5.8% stake in summer 2000. Currently, Janus owns 0.8% -- still the third-largest institutional owner, according to Lionshares. That selling contributed to Nokia stock's 43% drop in 2001 and 25% drop so far this year. A lot of other funds have been selling, as the chart below indicates.

Nokia's shares have climbed 33% since the October rally began, and the stock may look a little pricey. But Nokia's return on equity of 18.2% handily tops its peers' average ROE of 10.2%. And several money managers (like Legg Mason Focus Trust's Robert Hagstrom) and industry watchers (like

RealMoney

contributor Cody Willard) say "the Dell of the wireless-telecom industry" is best poised to post growth as the sector improves.

"With Nokia, you need to keep a really close eye on the replacement rate," said Todd Bernier, wireless analyst for Morningstar. "Their stock has also been on a big run, so it's important to know how fast people have turned in an old model for a new one."

Investors in Nokia, easily the leader in handset sales, must focus on handset growth as a key to the company's long-term value. "Handsets are a major part of Nokia's revenues. If those slip, revenue will slip. They are already a billion subscribers in the world, so where is the new growth coming from?" asked Kshitij Moghe, industry analyst for Frost & Sullivan, a consultant group.

Motorola: Something of Value?

In the first quarter of 2000, nearly 30% of all mutual funds owned Motorola, which had just posted earnings of 20 cents a share. By the time Motorola posted an 11-cent loss in the second quarter of 2001, less than 18% of funds were still holding on. But a funny thing happened on the way to zero: Value funds started getting in.

Motorola's Minions
Motorola turns up in more funds as earnings edge back into the black.

Source: Morningstar

"Value funds are starting to buy into telecom," says Christopher Davis, fund analyst at Morningstar. "The average large-cap value fund has a 5% holding in telecom, while the average large-cap growth fund has only 1%."

Motorola has turned up in quite a few value funds, such as Oppenheimer Value's 4.8% stake. While only 10% of growth funds own the company, 24.8% of value funds have a piece of Motorola, according to Morningstar.

This is something value-fund investors might want to keep an eye on, giving that Motorola -- while the stock has certainly come down -- has a forward P/E of 82, declining sales and a negative return on equity. A bet of Motorola is a bet on management's ability to turn the ship around.

"They have a ton of different businesses, but none of them perform incredibly well," said Bernier.

With a semiconductor business, Motorola is even more diversified than Nokia, which is one reason why some investors have turned on the company. To them, it's like a bad all-you-can-eat buffet, offering a plethora of mediocre businesses with lukewarm prospects. Detractors would like to see the company either focus on handsets, infrastructure, semiconductors or networking, but not all of them at the same exact time.

"Speculation is that they're going to get out of the network business," Bernier. "If they sold that and the semiconductor business, investors would really cheer."

Motorola watchers say it's imperative for the company -- which has picked up a reputation for continually lowering and missing earnings expectations -- to make the fourth quarter of this year.