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The mutual fund world never stopped riding the four horsemen of technology -- in fact, the cavalcade has exploded in size.


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-- riding high again, with all four climbing more than 20% during the past month's rally -- have had some hard times since the glory days of early 1999.

But mutual funds, as a whole, never stopped banking on these four stocks during and after the tech bubble burst. In fact, according to research conducted by fund-tracker Morningstar for

, more and more large-cap funds have gotten in: The number of funds owning Dell, for instance, has more than doubled to 746 from 316 back in January 1999. Moreover, funds of both growth and value stripes have purchased the four stocks in droves -- in many ways it's a conundrum, given that Cisco, for instance, looks fairly pricey to some, yet value-fund ownership of the networker has tripled. Likewise, concerns about the technology-spending drought raises the question of whether some of these four merit the "growth" label.

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Do the smart money bets on Dell, Cisco, Intel and Microsoft augur great things for technology -- or does it mean managers still haven't mastered their tech addiction? Probably neither. Many fund managers are obligated to invest some portion of their holdings in tech; one explanation for the surge in interest is that, on a relative basis, these are the best of the worst. "One thing I hear from fund managers all the time is that these companies aren't going away," said Paul Herbert, a growth fund analyst at Morningstar. "Some accept that this is as good as it gets."

A closer look at large-cap fund ownership of these four stocks answers some questions about where the smart money thinks these stocks are heading. In each case, analysts and


columnist Cody Willard weigh in to make their assessments as well. If you've given up on these stocks individually and think this doesn't apply to you, think again. If you own a large-cap fund, you more likely than not have a stake in each of them: All four turn up in more than half of the large-cap funds' portfolios.

Don't Bet Against Microsoft

As any competitor of the software giant will tell you (if they are still around), it's not a smart move to bet against Microsoft. And fund managers have taken that credo to heart: At the end of the third quarter, 960, or 69%, of the 1,391 large-cap funds tracked by Morningstar owned the stock. And, as Microsoft has continued to post improving earnings in the face of the 1999-2002 tech disaster, ownership has climbed across the board.

Mighty Microsoft
Fund ownership has risen 75% since 1999 in the face of the bursting tech bubble. The stock (as inset chart shows) has fallen 18.3% during that time, but that beats the S&P 500 by 7.3 percentage points.

Source: Morningstar, Bloomberg, Baseline and

"A lot of companies are suffering from a lack of pricing power, where margins erode and profits decline, but not Microsoft," said Joe Kalinowski, chief investment officer at Ehrenkrantz King Nussbaum.

Both growth and value managers are drawn to the company's potential upside, especially since Microsoft has more cash -- $30 billion, at last count -- than any other company to spend on research and development. In a world where capital expenditures are shrinking, Microsoft will be able to fill the void and continue pushing innovation while others are restructuring. By the time the upturn comes, the company could be way ahead of the pack. (Click

here to read what Legg Mason Focus Trust manager Robert Hagstrom says about Microsoft. Hint: He likes it.)

"The company has a good operating position, no tough competitors and the shares peaked out near $120," getting halved since then, Cooley said. "A value manager would argue that it's much cheaper than it used to be and has a ton of cash. It's rock solid from a balance sheet perspective."

Finding Value in Microsoft
The number of funds buying MSFT, especially in the value arena, has soared.

Source: Morningstar, Bloomberg, Baseline and

For some value types, a price-to-earnings multiple of 29, according to Baseline, might sound a bit dear. Microsoft trades at a slight premium to others in the software space, but it's hard to argue that the company hasn't earned a premium to its rivals. It may never be a rock-bottom value stock, and the law of large numbers makes massive growth a challenge. But Microsoft is a blue-chip tech holding that both sides agree on: It's the closest thing to a stock that lets you sleep at night while holding, and one that won't get a fund skipper fired.

Cody's Call: "You can't bet against them. These guys have proven themselves as incredibly business savvy with decisions. I own it." In the mid-$50s, Willard says he'd nibble. But if it drops below $50, it's time to back the truck up.

Dell: The Conqueror

The personal-computer space has been devastated during this downturn. Rivals died off, others merged. Dell emerged as the runaway segment leader. Money managers credit the company's efficient manufacturing system and unbeatable business model for the relative strength over its peers.

The company's ability to confound expectations about peaking growth has drawn more growth fund managers, while the 66% plunge during the tech-stock collapse of 2000 enabled value skippers to join the party. The stock now turns up in 710, or 51%, of the funds in the large-cap arena.

However, the stock's recent recovery may trigger sell signals for some value skippers. "This is an industry that is becoming more of a commodity and the low-cost producer will always win," said Cooley. "But the value managers can't make a case for it anymore, because it rose 16% over the last month."

Dell trades at a healthy premium to its rivals -- a P/E of 43, compared to the industry's 29, according to Baseline. But while Dell may not be a classic value play, growth managers have grown more bullish on its prospects.

Dell Bent
As Dell trounced its boxmaker rivals the past three years, the number of funds owning the stock rose 137%

Source: Morningstar, Bloomberg, Baseline and

At a time when every tech company seems to be barely breathing, "one thing you notice is how Dell's earnings estimates have been rising. Wall Street is getting more bullish on it," said Cooley. "And some of these growth managers may have spotted a trend."

Getting a Dell
Growth, blend and value funds all bought in to Dell in recent years.

Source: Morningstar, Bloomberg, Baseline and

Ultimately, it's tough to make a case for Dell as a bargain at these levels -- especially with Christmas PC sales expected to be weak. But if the stock coughs up some recent gains, it could become a nice pick-up in the low $20s, based on its earnings outlook, said Cooley.

Cody's Call: "These guys are the Wal-Mart of technology. They're moving into new areas and they have the best processes and the best manufacturing capabilities." Willard says he isn't a fan of the stock in the high $20s, but would start looking once its under $20.

Cisco: The Last Networker

The telecommunications industry has been devastated, but Cisco has managed to weather the storm better than its rivals. For this reason, it has become the default choice for many managers who want exposure to networkers. The stock turns up in 813 large-cap funds, 59% of the total group.

The Cisco Grid
Cisco's stock has fallen 45% since 1999, but fund ownership has climbed 51%.

Source: Morningstar, Bloomberg, Baseline and

Cisco's cash-heavy balance sheet and relative strength have it well positioned to capitalize if and when the industry recovers. But in its recent earnings release, the company gave no indication that a recovery was at hand and as a result, Cisco can only be considered a growth stock in the most limited, 1999-dot-com-era sense -- that it will


show impressive growth.

The nasty drop in Cisco's stock -- it remains off more than 75% from its high -- also limits another avenue the company has traditionally used for growth: using its shares as currency to buy innovation. This isn't an option anymore, which may force Cisco to use its cash to beef up internal research and development. But with so much overcapacity and few customers clamoring for new innovations, Cisco has time on its side.

While everyone waits for growth to return, even Cisco's bulls are spooked by its valuations -- a P/E multiple of 29, according to Baseline.


Doug Kass, an ardent supporter of the company, told readers last week that he sold his entire position because the stock had run up so much during October.

Cisco: The New Value Play?
Cisco turns up in far more growth funds, but 52 value funds call it a bargain.

Source: Morningstar, Bloomberg, Baseline and

"A value player is going to try to come in as a company is exiting its dog stage," said Kalinowski. "One can make a case here that based on earnings yield, it deserves to trade at $11 or $12 a share. It still has to come down." The stock closed Friday at $12.56.

Cody's Call: "I sold my long position and got short the stock. In the near term, I don't see a compelling reason to buy it, although I'd get long in the next few months. Of the four, this is the one I want most long term, but not now." Willard plans to cover his short at $12, nibble on the stock when it hits $11 and buy heavily between $8 and $9.

Intel: A Tough Call

This is one tech horse that's working with a few busted fetlocks -- it has been brutalized by competition amid the slowdown. Nonetheless, the stock turns up in 885 large-cap funds, or 64% of the group.

Intel Inside
Intel turns up 50% more large-cap funds than it did in 1999, when its earnings and stock were much higher.

Source: Morningstar, Bloomberg, Baseline and

Intel booked $2 billion in net income during the first calendar quarter of 1999; after the fall, it booked half as much three years later. Apparently, Moore's Law only works for processor speeds, not the income of the companies that make them. Because of the sharp downdraft in income and the fact that many believe that kind of earnings growth was a once-in-a-lifetime anomaly, putting a proper valuation on Intel has given managers agita. As a result, many have decided to disregard the late '90s when Intel had a P/E of 90.

Across the Mother Board
Value and growth funds have picked up Intel eroding shares.

Source: Morningstar, Bloomberg, Baseline and

"What I hear is that a lot of managers are looking at the price-to-sales ratio in the mid-1990s to figure out what this company is really worth," said Cooley. "They feel the valuation in the late 1990s were not typical because of all the irrational spending going on."

Currently, Intel has a P/E of 37, cheap compared to the P/E of 89 sported by the semiconductor industry. But, in 1995, Intel's P/E ranged from a low of 10 to a high of 25, which would mean it's overvalued at current levels.

Or is it? Value managers have resurrected the notion that Intel is, in fact, a cyclical name, which means they want to buy it when the P/E is high and then sell it when the P/E is low. "They're definitely playing this stock like a cyclical now," said Cooley. "Every time it dips, you have a guy like Marty Whitman, who runs the

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Third Avenue Value Fund, buying in."

Cody's Call: "Intel is a meld between Dell and Microsoft. They make good strategic decisions. Their manufacturing position blows away the AMDs of the world. But I have a hard time seeing the growth, or the value." Willard's interest would be piqued if Intel were to fall more than $4 from current levels, below $14.