Winstar Communications

(WCII)

reported better-than-expected second-quarter results Wednesday, and there's reason for mutual-fund investors to prick up their ears.

That's because top fund shops such as

Janus

,

Fidelity

and

Putnam Investments

have big stakes in the New York-based wireless communications concern, whose shares have sagged so far this year. Individual funds from

Kinetics

and

Firsthand Funds

have healthy bets on the stock, too.

For stock jockeys who own Winstar shares, there's the usual good news/bad news nugget that comes with big fund interest in a stock: Managers appear to be bullish on the unprofitable company, despite its widening losses. But if the pros sour on Winstar, they could drop the stock quicker than you could say

sell

.

Fund managers currently own 35% of the company's shares, according to

Morningstar

. At the end of the first quarter, Janus, Fidelity and Putnam Investments owned 10.8%, 8.9% and 6.3% of the company's shares respectively, according to

bigdough.com

, a Web site that tracks institutional stock ownership.

On Wednesday morning, the company posted a $2.32 loss per share for the second quarter, narrower than its $2.35 loss in the same quarter last year, but wider than its $2.06 loss in the first quarter. Analysts were expecting a loss of $2.53 a share. Revenue surged 83% to $176.3 million. The stock was up 93.75 cents, or 3.1%, to 31 in midday trading.

These investors are betting on Winstar's early lead in what's called the fixed wireless, or "last mile," business. Essentially, Winstar places dishes on rooftops that provide companies with fast broadband voice and data transmission, as well as Net access, without having to tear up streets to connect buildings with fiber-optic cable. With less than 10% of buildings in the U.S. having fiber-optic cable connections, and Winstar having most of the country's largest markets covered, its prospects could be vast. The stock's calendar year returns from 1995 through 1999 averaged 56.1%, compared with 28.7% for the

S&P 500

.

"Long term, we think this is a great value," says Thomas Lynch, Boston-based co-manager of the $42 million

(LDUTX)

Lindner Utility fund, which bought the stock in April and has a $23 average cost, according to Lynch.

"We could see the stock in the low 70s within 12 months. We think it's a great growth opportunity," Lynch says, adding that its product could see significant demand, "particularly in older cities like Boston and New York."

But Winstar's dish technology has had trouble operating in fog, rain and snow, forcing them to rethink their strategy and rely more heavily than expected on conventional fiber connections. Also, a rival broadcast laser-based system from privately held

TeraBeam

has

caught the eye of influential commentators like George Gilder, editor of the newsletter

Gilder Technology Report

. Since Jan. 1, Winstar stock is down 40.1%, and nearly 50% since the end of March.

The upshot: Winstar could be in a lucrative niche if the company gets its technology straightened out and doesn't buckle under the costs of building its network.

"It's a sexy industry and investors are thinking fixed wireless is going to be a big business," says Morningstar stock analyst Todd Bernier, who calls the stock "speculative."

Many of those investors roam fund company halls, including Alan Harris of the

(MNITX)

Munder NetNet fund, the nation's largest Internet fund, which is currently closed to new investors.

"They've got great technology and a tremendous opportunity to get last mile

Internet access to buildings without fiber," he says. The NetNet fund has owned Winstar for at least two years, according to Harris, who likens the company's situation to cellular-phone companies a few years ago, where the high initial costs of building cell towers eventually led to big profits. On May 31, the stock represented 1% of the fund's assets.

If the company is a leap of faith right now, several high-profile funds have jumped. Six funds currently have more than 2% of their assets invested in Winstar, including

(JASSX)

Janus Special Situations,

(TCFQX)

Firsthand Communications, and two funds from Kinetics -- adviser to the sagging Internet fund.

Despite the stock's recent downturn, several funds have had a hearty appetite, according to their most recent portfolio reports. Among the big recent buyers are Munder NetNet and

(JAMRX) - Get Report

Janus Mercury.

Investors in these funds might pay some attention to the stock and wireless sector in general because several fund companies including

Janus have jumped on the wireless/telecommunications bandwagon with both feet.

And stock investors might keep an eye on mutual funds' stakes, too. Since they own more than a third of the company's shares, an exodus could sink the stock's price in a hurry.

Although recent funds sellers of Winstar shares have been modest compared with buyers, it shows that not everyone is a Winstar believer. In fact, even though Putnam owned 6.3% of the company on March 31, it had sold more than 385,000 shares prior to that report.

Invesco

, Janus' rival growth shop in Denver, owned 2.1% of the company at the end of the first quarter, but had sold nearly 500,000 shares, according to bigdough.com.

Staff Reporter Scott Moritz contributed to this report.