The Wireless Future

05/27/2005 12:00 am EST

Focus:

"Wireless is going through a transformation," says Nikhil Hutheesing, a leading expert in the wireless sector. "Only recently has wireless technology begun to change the way we live our lives." Here, he looks at the top ways to play these developing trends.

"I think big opportunities are coming in the wireless sector. Wireless is going through a transformation from a technology that lets you make phone calls to a very sophisticated network that makes the experience similar to what one has with high-speed access to the Internet. This move to broadband wireless is so powerful today that these networks are covering great expanses, allowing you to transmit all kinds of data, music clips, video clips, etc. around the world in seconds.

"In finding stocks for our portfolio, one of the first things I do is break up the wireless sector into three segmentsapplications, equipment, handsets and within those sectors, I look for stocks with low p/e ratio (generally below 20), a price earnings to growth ratio of close to 1 and low debt, cash flow generation, etc. Then, I look for companies that have an exciting story that could make the stock take off.

"Qualcomm (QCOM NASDAQ) is the single most important and biggest player in the wireless sector. It’s a great company. The firm owns the intellectual rights to CDMA, which is the technology that is most widely used for broadband wireless networks. Qualcomm is also supporting many small companies with new technologies. Perhaps the most exciting development is MediaFlow, which should be ready for consumer use in 2006. Qualcomm plans to spend $800 million to build a nationwide mobile video network allowing you to get digital quality TV on your cell phone. It will be offered to wireless carriers and could be another huge success for the company. The stock price is down over the past 12 months by about 20% and trades at about 30 times this year’s earnings and the recent pullback makes for a very attractive opportunity for investors. I think it could reach $50 within 12 months. Long-term, it is a core holding that really should be in every wireless portfolio.

"For near term results, I’m putting my bets with Motorola (MOT NYSE). One  product that has been getting a lot of attention is the Razr, a really thin phone that is also very rich in functions. It can create high quality images so you can watch high quality MPEG4 video clips, 3G graphics, and it works in over 100 different countries. In the second half of this year, Motorola is planning to release the V635 which is a high performance flip phone with all the functions of the Razr, that will also let you surf the web, and download and share photo files and music at high speeds. And the company has just released the MPX-220, which comes with Word, Excel, and PowerPoint, plus a 1.3 megapixel camera, with zoom and video playback capabilities, as well as Bluetooth and other complex multimedia services. These are hardly even phones anymore, given all you can do.  I think the shares set to head up to about $26 over the next 12 months.

"In addition, you can’t have a discussion about wireless without talking about China. So far, only about 20% of the Chinese population has access to a phone, wired or wireless, so there remains a huge, huge untapped market. So how do you make money from China? Consider Tom Online (TOMO NASDAQ). This Chinese company just went public in March at $15.65 and investors can now get in at prices that are lower than when it was offered to big institutional clients like Morgan Stanley and Citigroup. I think the prospects for Tom are great, given its position in China. The company is backed by Li Ka-Shing, the richest man in Asia, who is a billionaire many times over. He has said he wants to create a giant media conglomerate and Tom Online could play a significant role in that if it were to happen.  If you have a long-term view, Tom Online should do well. I have a $20 target."

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