(FORTUNE Magazine) – To get an idea of just how hungry--and how fickle--the market is for broadband stocks, check out Corvis Corp. The optical-networking company, based in Columbia, Md., more than doubled the asking price on its initial public offering because buyer demand was so strong. And even though it has no revenues to speak of and only three customers so far, Corvis now commands a $24 billion market cap. (See "Anatomy of a Tech IPO" in the fortune.com archive.) Then there's Ciena. The poster child for broadband, this optical-networking company--one of whose founders quit to start Corvis--saw its shares plunge $8 in a single day when the news broke that a major client had gone belly-up in September and left Ciena holding a $28 million IOU. Unlike Corvis, Ciena has a hefty $571 million in revenues this year and a decent earnings record. Its market cap? A mere $30 billion.

Sure, you could start any investing story with a cautionary tale or two. But that's even more true with broadband stocks. The sector is in its infancy. It's going to take a few years before always-on, high-speed Internet connections become a household fixture, and in the meantime companies are still jockeying for position. "In this industry, if you have a good product and you get to the market first, you become the leader--until somebody else comes along," says Rudy Torrijos, manager of Neuberger Berman Technology fund.

Despite that uncertainty, there are ample opportunities for investors. In fact, now is a perfect time to take advantage of the jostling that's going on. It's just a matter of time before broadband becomes mainstream, says Mike Eggly, manager of the Northern Global Communications fund, who keeps the bulk of his $115 million fund in broadband-related stocks. "Just look at cell phones," Eggly says. "They used to be a toy for the rich and techno-savvy. Now everybody has one."

Chris Ely, manager of Loomis Sayles Global Technology fund, is so smitten with the promise of more bandwidth that he's putting optical fibers into the walls of his new dream home, even though high-speed Internet access isn't yet available in the sleepy Boston suburb of Dover. "I don't want to miss out if there's a fiber opportunity," Ely smiles. "There's going to be an application that you and I can't imagine that'll use up this broadband."

With that in mind, FORTUNE spoke to some of the savviest money managers and analysts to find the best ways to invest in the broadband boom. We even played Janus for a day, scampering down a manhole in Manhattan to see firsthand how one company, Metro Media Fiber Network, routes its fiber-optic cables to your PC port. What we came up with is a handful of companies poised to continue growing no matter who delivers the service or what application it gets used for. You won't find any Internet service providers or carriers in our lineup. We think the companies that help build the infrastructure and supply the equipment and software to run it--the picks and shovels behind the bandwidth--are going to be the long-term winners in this race. And these companies have real products, not to mention revenues. Some of them (believe it or not) even have earnings.

For the sake of simplicity, we divided them into three categories, according to risk. Those categories are: Must-Haves (reasonably safe staples for any broadband portfolio), Nice-to-Owns (less established companies that still represent a decent place to stash some extra cash you won't need anytime soon), and Mad-Money Buys (some speculative bets for the gutsy crowd). While these stocks aren't cheap compared with old-economy stocks in, say, the Dow, most are nonetheless modestly priced compared with peers. That's why in this bunch you won't find names like JDS Uniphase or Nortel, which we think are already priced for perfection. Moreover, the recent tech jitters offer you an opportunity to get in below the peak prices of last spring.

Must-Haves

Texas Instruments: What do semiconductor chips have to do with broadband? Everything. The tiny chips are embedded in many devices essential for accessing the Internet at lightening-fast speed. They're the brains in wireless phones, Palms, and cable and DSL modems. They process, direct, reformat, and organize all that data going in and out.

Texas Instruments has the lion's share of the chip market for digital phones. Its programmable digital signal processor (DSP) chips power two-thirds of all the wireless phones in use today. Now the company is trying to duplicate that performance in the modem market. Over the past three years it has spent $2 billion on broadband-related acquisitions, snapping up digital-modem technology company Amati Communications and cable equipment chipmaker Libit Signal Processing, among others. TI has shipped nearly one million cable modems and more than one million DSL modems this year. In the second quarter alone, broadband revenues rose 67% over those of the prior three months. Now its DSP chips are being installed in Compaq's Presario Internet PCs and Alcatel's voice-over-the-Internet modems.

TI is competing in a space that's growing at a fast and furious rate. The digital-signal processor chip market, valued at $4.4 billion in 1999, is expected to balloon to $19.2 billion by 2004, according to Forward Concepts, a technology research firm in Tempe, Ariz. Today TI has a commanding 48% share of that market.

Even better news: TI's stock, at $59, is relatively cheap compared with the competition. It trades at 45 times this year's earnings, while rival Analog Devices trades at 61 times earnings and highflier Broadcom trades at 255. Plus the recent selloff in chip stocks has made TI even more attractive. "Now is a good time to look at it more closely," says Mark Mitchell, vice president of equity research at GE Asset Management, which owns a good-sized position in the stock. "It's on sale."

Ciena: Speaking of sales, Ciena has been on and off the red-tag list for years. It was dirt-cheap two years ago, when the stock dropped as low as $8 after Ciena's engagement with Tellabs was called off and AT&T, a big potential customer, said no, thank you, to its optical-networking equipment. Since then it has rebounded nicely, to a recent price of $214.

Ciena's signature product, a dense wavelength division multiplexing (DWDM) box, in addition to being a mouthful, is a hot commodity for high-speed Internet service providers right now. It helps boost capacity on existing fiber networks without digging up the streets to lay new fibers. Just plug a Ciena DWDM box into the network, and you can immediately send as much as 100 times more data over each fiber. How? Ciena's DWDM technology works by breaking the white light that zips along the fibers into 96 separate colors, or wavelengths. (Some manufacturers' boxes divide light into as many as 160 colors.) Each wavelength has the ability to carry as much information as the original light. Already 40 carriers use the company's DWDM equipment. "Ciena is in the sweet spot of the market," says Loomis Sayles' Ely. "Its boxes go right into the metropolitan area networks."

Now Ciena is getting into a new business: optical switches. There's a heated debate going on among the handful of networking companies out there now over whose technology will work best for these switches, which route massive amounts of light beams at the juncture points of the network. But Ciena is confident that its new switch will do a lot to decide the outcome of this debate. Its switch not only routes the optical signals but also makes the network more intelligent. Combined with software and tailor-made computer chips, Ciena's switch can continuously monitor the network and deliver extra bandwidth wherever and whenever it's needed. It's called a "self-healing" network because when something goes wrong, the switches instantly fix it instead of waiting for a technician to come in to troubleshoot. Ten of Ciena's customers, including Qwest, Nextlink, and Williams Communications, are testing the product now. Three have signed agreements to use it, though they haven't set definite dates. If the switch catches on among network operators, expect Ciena's growth rates to take off.

Nice-to-Own Stocks

Metro Media Fiber Network: This company plays the role of landlord to the local network. It installs extremely dense fiber-optic cables in the bowels of major cities and then leases them out to two types of customers: telecom companies that want to offer high-speed Internet connections in metropolitan areas but don't have the time or money to lay the cable themselves, and corporations that want to set up their own dedicated fiber-optic networks and are willing to pay for the privilege. Through Metro Media, they buy exactly the amount of bandwidth they need--no more, no less. "Not only is it the cheapest way to get fiber, it's also the fastest," says Eggly of Northern Trust.

Demand for Metro Media's dark fiber (so called because clients have to light it with their own equipment) is so strong in New York City today that the company is already installing its third loop around Manhattan. Among Metro Media's customers are SBC Communications, which just signed a 20-year agreement to lease lines in 26 U.S. cities, and Chase Manhattan Bank. What's more, when corporate clients sign on, they usually stay for the long term: The average lease runs 15 to 17 years. Revenues for the second quarter of 2000 were $43.3 million, a 113% increase over 1999.

Now Metro Media is developing another potentially big source of revenue. A year ago it purchased AboveNet, which runs "co-location centers," something like hotels for telecom equipment. These are places a company can store its boxes in a secure, air-conditioned environment. AboveNet makes sure the companies have enough capacity to support their traffic. It also provides backup electricity in case there's a power outage. Thanks to that acquisition, Metro Media now offers bandwidth on demand to heavy hitters like eBay.

Redback Networks: Redback is another company that's hacking away at a problem plaguing many service providers: keeping track of those digital subscriber lines. With people signing up every day, Redback makes a system that helps aggregate all the lines and make them more manageable. As telcos rush to install DSL lines everywhere, they're relying more heavily on these boxes. In its latest venture Redback is trying to duplicate that success on a larger scale, by aggregating data and voice traffic from the massive optical networks in metropolitan areas. It introduced a new piece of equipment in May called SmartEdge 800, which, Redback says, can save carriers 50% or more in capital costs. That also lets the company compete on a much bigger playing field. The market for optical equipment in metropolitan areas is expected to swell to $23 billion next year, from $17 billion this year, says Neuberger Berman's Torrijos.

Mad-Money Buys

Micromuse: Every three months the amount of traffic on the Internet doubles, and as all these people log on at superfast speeds, there are bound to be traffic jams. Both Micromuse and our other speculative broadband stock, Radware, are working to solve the problem. The two are relatively new entrants to this emerging field, and both offer the potential for huge gains--that is, if their technology gets adopted.

Micromuse sells software that monitors traffic over networks, showing exactly where there are bottlenecks and jams. "It's a critical piece of the puzzle," says Jay Nakahara, tech fund manager at Invesco.

Radware: This company, based in Tel Aviv, takes a different approach. Rather than simply showing where the gridlock is happening, Radware makes equipment that reroutes data in advance, before it gets stuck. Essentially it's a server's server, monitoring everything that happens on a system and allocating traffic to the server that's least busy.

Radware is one of the few traffic cops that has revenues: $8.5 million in the second quarter. More important, the company has no debt. And at $32, the stock is cheap enough to spark speculation that a bigger fish, like Lucent, for example, may gobble it up one day. Asked about the prospects of just such a sale, Radware CEO Roy Zisapel says circumspectly, "Being a public company, if an offer came, we'd do what's best for the shareholders." Not exactly a wink and a nudge, but we'll take it.