Scoping Out Stocks For A World On The Go

Mobile computing isn't just for road warriors. For investors, mobility is a tantalizing theme, offering a multitude of stocks to watch. Mobile computing is one of the fastest-growing areas in high tech. Market researcher Data-quest estimates that U.S. sales of handheld computers alone will increase 63% over the next two years, from 1.7 million to 2.7 million units. Dataquest figures U.S. unit sales of all mobile computing devices, including laptops, will grow 25% in two years.

While few companies focus exclusively on mobile computing, some leading industry suppliers stand to benefit from its rapid growth. 3Com and Nokia are both potential winners, says Ronald Elijah, manager of Robertson Stephens Information Age fund. Elijah, whose mutual fund posted a 52% total return last year, thinks 3Com's soon-to-be introduced Palm VII organizer, with its wireless Internet connection, will ignite a new round of growth of handheld devices. He also likes prospects for the Nokia 9000, a mobile phone with Internet access.

Neither stock is cheap (table). 3Com recently traded at a price-earnings multiple of 33 times Wall Street's consensus earnings estimate of $1.37 per share for the fiscal year ending May 31. Nokia's American depositary receipts soared 265% last year and were up 5% this year through Feb. 1. Elijah, who likes the long-term outlook for both companies, suggests buying on dips.

High valuations are just one reason investors should be cautious. These shares can be volatile. Sometimes even powerful growth doesn't play well. Nokia dropped sharply on Feb. 1 because its 66% increase in 1998 profits, reported Jan. 29, didn't beat analyst's expectations by enough.

OUTDOOR FAVORITES. Merrill Lynch analyst Thomas Watts favors a company focusing on mobile executives who need help to get where they're going. That outfit is Orbital Sciences, maker of global positioning satellite (GPS) devices. Hertz is installing them in 50,000 rental cars, and low-cost versions of Orbital's Magellan GPS devices are popular with hikers and boaters. Watts thinks Orbital's profits will grow 19% this year and could rise faster if carmakers decide to make the technology standard equipment.

Two other promising companies make semiconductor chips for mobile devices. Charles Morris, manager of the T. Rowe Price Science & Technology fund, likes Analog Devices and Maxim Integrated Products. Chips they produce for handheld computers and portable phones are among their fastest-selling products. Analog Devices, whose profits are expected to grow 24% in its fiscal year ending Oct. 31, recently traded near its 52-week high. Maxim's fiscal 1999 profits are only expected to increase 12%, but revenues have been soaring, and its stock is up 124%, to $48, since October's market crash.

Texas Instruments is a major supplier of semiconductors to the mobile computing industry. Last year it restructured its huge chip operations to focus on digital signal processors, which are critical components in mobile devices such as cell phones. Merrill Lynch chip analyst Thomas Kurlak estimates that TI's cell-phone business grew 60% last year, and on Jan. 20 he raised his 1999 earnings estimate to $2.60 per share, from $2. The new estimate would put TI's profit growth this year at 150%.

No mutual funds focus exclusively on mobile computing. But some tech funds have big holdings in the sector. PIMCO's Innovation Fund and Fidelity Select Technology both had Nokia among their top 10 holdings. Select Technology also listed Texas Instruments among its top 10. So the next time you buy mobile computing gear, examine it closely. You may find a good investment inside.