ETF Teardown: The Top Wireless Stocks

Noted for their simplicity and other advantages over mutual funds, exchange-traded funds have become a popular investing tool. ETFs hold a collection of stocks that share certain elements.

If investors want to capitalize on the rapid growth of wireless services around the world, for example, they can turn to Wireless HOLDRs, which has more than 40% of its value in Qualcomm (Nasdaq: QCOM) and Research In Motion (Nasdaq: RIMM). But because this ETF invests in a number of stocks, its broad diversity also limits your upside.

Fear not, Fool -- in this edition of "ETF Teardown," we'll use some nifty tools to drill into the best investments in the wireless sector. To help, we'll use Motley Fool CAPS, our tool for screening and ranking stocks and stock pickers.

The power of tags
To help investors quickly locate great stocks, the 5,700 stocks rated in CAPS can be "tagged" with descriptors that group the company with others sharing certain qualities -- "Waste Management," for example, or "Medical Technology."

Selecting the Wireless Communications label in CAPS gives you a list of 82 companies that trade on American exchanges. This particular collection of investments has been lagging in the past year. In fact, its 13.2% this year even slightly outpaces the S&P 500 drop of 12.3%.

But some members of the CAPS community smell opportunity in certain wireless companies today. To find them, we'll sort a sampling of these businesses by their CAPS star rank, from one to the maximum five stars. We'll then examine a few companies to see who -- from Wall Street to Main Street -- is bullish or bearish on the business, and why.

Getting down to the nitty-gritty
Here are some wireless stocks I've gleaned from CAPS today.

Over there
Foreign wireless companies continue to hold many attractive qualities -- developing markets, underpenetrated populations, and increased consumer buying power among them.

Russian giant VimpelCom has been on an absolutely blistering growth path for several years. Once mainly a provider of wireless services to Russia and the surrounding Commonwealth of Independent States, the company recently swallowed Golden Telecom to complement its offerings with fixed-line broadband services. Even the price surge in shares hasn't damped investors' enthusiasm -- nearly 98% of the 1,200 CAPS investors rating the company still think it's a buy.

Brazilian cellular operator Vivo Participacoes gets high marks in CAPS as well. With much of Latin America only now getting a taste of next-generation 3G services, there are plenty of revenue and profit expansion opportunities ahead, despite stiff competition in the region. I've already highlighted the company as one of Brazil's best stocks, and CAPS investors largely agree, with nearly 98% of the 330 investors rating the company giving a bullish thumbs-up.

And the fully saturated market of Taiwan may hold few expansion opportunities, but leading telco Chunghwa Telecom has shown that it can turn meager growth into cash for investors. There are limits to upselling services to Taiwan's 23 million inhabitants, however, so the company is gearing up to make investments abroad. CAPS investors like the strategy here, too, and more than 98% of the 313 investors rating Chunghwa think the company will beat the market.

Scale down
Two other relatively tiny wireless players on our teardown list don't hold the same star power, but they have a good portion of CAPS investors intrigued nonetheless. Equipment supplier Airspan is hoping to recapture a growth trend as WiMax networks continue to spread throughout the world. The stock has been pummeled over the last year to the tune of 75% as the company refocuses the business, and some CAPS investors think this is a good time to consider the company.

Chinese equipment supplier China GrenTech has also seen its stock sliding, to the tune of a 60% drop in the past year. But more than 340 CAPS investors find fundamental value in China GrenTech, especially considering the growth opportunities in its domestic market. Although centralized bidding in China pressures equipment margins, the company expects better results from integration services. Maybe its not as rosy as management thinks, but 94% of CAPS All-Stars rating China GrenTech are behind the company with a vote to beat the market going forward.

Lead a horse to water ...
Plucking individual stocks from the wireless sector is, of course, a high-risk endeavor. Investors should always perform their own due diligence on companies rather than take a recommendation. Even the best stock pickers can be horribly wrong.

Do you agree that foreign wireless plays are the place to invest today? Or are undervalued gems lurking somewhere else? Give your own opinion at Motley Fool CAPS.