(MONEY Magazine) – THIS MONTH:

--How to earn a steady 8% without buying bonds --Gain 23% from health-care's 900-pound gorilla. --Cut out the middleman and save on Nasdaq trades.

By now everybody knows that scientists have successfully cloned a sheep from a ewe's mammary gland and produced two rhesus monkeys from monkey embryo cells. But investors are asking: Can you clone profits?

As you might guess, PPL Therapeutics P.L.C., the Scottish biotechnology company that brought forth seven-month-old Dolly, the man-made ewe, saw its stock soar 16.4% to $6.25 on the London Stock Exchange the day of the announcement. No surprise here.

But stocks of companies that announce some new discovery often rocket out of the gravitational field, only to see their gains vaporize when the hype doesn't translate promptly into increased sales and earnings. Just ask investors in stocks like Chiron, which saw a price plunge of 36% from its 1996 high of $29.50 when a much heralded vaccine for herpes did not pan out. Indeed, apart from a handful of established moneymakers like Amgen and Genzyme, the entire biotech industry has lost more than $9 billion of investors' money over the past two years alone.

As for PPL Therapeutics--which failed 277 times before creating Dolly--it is nowhere near commercializing its cloning process to produce animals for medical testing. Says Michael Murphy, editor of the California Technology Stock Letter ($295 for 24 issues; 800-998-2875): "That's a good 10 years away."

So the question investors ought to be asking is: How can I make money on any exciting new product? Frankly, the answer is: not easily--but it can be done if you follow some rules. Wall Street pros who make their living in part by assessing the impact of discoveries on stock prices gave us four of them. For starters, Alan Skrainka, chief market analyst for Edward Jones in St. Louis, suggests you look for outfits that have learned how to exploit a new product. "Find a company that's done it before," he says.

Next, evaluate the product itself. Paul Cox, manager of the Commerce Bank Mid-Cap Fund in St. Louis, first wants to see evidence that the gizmo can't immediately be copied by competitors. It should have patent protection, for example, or a technological lead or a head start in coming to the market. Then Cox applies what he calls the commonsense test: "If it's faster, cheaper or smaller, we take another look."

Finally, says Murphy, you need to estimate the size of the potential market and the share the product can capture. The innovation must promise enough growth to have a big impact on corporate earnings--that is, to account for at least 5% of earnings over 12 to 18 months. Otherwise, the stock won't move. Murphy also wants to see that the company is committed to spending heavily on research and development. Unless a firm can replace its pioneer product with improved models or all-new breakthroughs, its market share will eventually erode.

Armed with these guidelines, we canvassed more than two dozen analysts and portfolio managers to identify companies nurturing another Netscape or Rogaine. We winnowed that list down to five companies whose new products figure to lift their stocks by more than 20% over the next 12 months. But a word of warning here: Three of these companies are young and small--and therefore, potentially volatile. They are listed below in order of projected return.

--MCAFEE ASSOCIATES (ticker symbol: MCAF; recently traded on Nasdaq at $48.25; no yield). In the view of analysts who follow this $240 million software maker, Me! is for you. The eight-year-old Santa Clara, Calif. company's new McAfee Enterprise network management software, called Me!, is the most comprehensive product of its kind ever assembled, says fund manager Cox. Me! can monitor the security of a company's e-mail network and other shared systems, protect computers from software viruses and provide Internet access. Moreover, Me! is compatible with Microsoft's widely used Windows NT. Robertson Stephens analyst John F. Powers points out that given the increasing need for centralized control and security in office networks, Me! figures to account for at least 25% of McAfee's 1997 sales almost immediately and fuel earnings growth of 50% annually. Powers expects Me! to boot the stock up to $80 in the next year, for a 66% return.

--VISX INC. (VISX; Nasdaq, $21.75; no yield). It's easy to see why analysts love this $83 million laser manufacturer. Its products allow doctors to cure some of the 66 million Americans who suffer from nearsightedness. The decade-old Santa Clara, Calif. company's procedure, known as photorefractive keratectomy (PRK), uses high-energy pulses lasting only billionths of a second to remove tissue from the cornea without generating potentially tissue-damaging heat as other lasers do. Mark Basham of Standard & Poor's thinks that VISX's lasers will soon beam into astigmatism and farsightedness. In all, Basham pegs the total U.S. market for PRK at 50 million patients. Willard Brown of C.L. King & Associates in Boston believes that revenues related to these new treatments could help maintain earnings growth of more than 30% annually in the next five years, pushing the stock to $35 over the next year, for a 61% return.

--TRIQUINT SEMICONDUCTOR (TQNT; Nasdaq, $29.75; no yield). Although Triquint's gallium arsenide microprocessors (GaAs) are not new, analysts who follow the $78 million company believe that their time has finally come. The processors, which work at higher speeds than conventional silicon computer chips, have found a home in the new generation of wireless personal communications systems (PCS). Because such systems run at 1.8 gigahertz--double the rate of cellular phones--they need faster chips. "GaAs have been around for more than 15 years," says Donaldson Lufkin & Jenrette's Robert Toomey. "But this is basically an emerging industry." Because Triquint has already lined up contracts with big-league customers like AT&T, Motorola and Northern Telecom, Cowen & Co.'s Drew Peck expects the firm to increase earnings by 70% in 1997 and thinks the stock should hit $46 within a year, for a 55% return.

--WARNER-LAMBERT (WLA; NYSE, $83.75; 1.8% yield). The FDA recently approved two blockbuster drugs for the $8 billion Morris Plains, N.J. pharmaceutical company--Lipitor, a cholesterol-reducing agent, and Rezulin, a treatment for type II diabetes (against which insulin is ineffective). Alex. Brown analyst Barbara Ryan believes the $1 billion annual sales potential of each drug should finally catapult this longtime industry laggard into the top tier of drugmakers.

The stock has already climbed in anticipation of both drugs hitting the market. But Jack Lamberton of NatWest Securities thinks that Rezulin, currently approved for use only by the 3 million or so type II diabetics who do not require insulin supplements could be cleared for use by all 15 million sufferers later this year. That wider market would double the drug's potential annual sales to $2 billion. As for Lipitor, if recent Warner-Lambert tests indicating it is superior to its competitors in reducing cholesterol prove to be correct, the drug would be poised to grab more of the market. For these reasons Lamberton estimates that Warner-Lambert's earnings could grow 25% annually and the stock could reach $120 in 12 months, for a 45% return.

--DELTA & PINE LAND (DLP; NYSE, $37.25; 0.3% yield). With revenues of $190 million, Delta & Pine is the largest breeder, producer and marketer of cotton planting seed in the country. In 1996, the Scott, Miss. company introduced genetically engineered "Bt" cotton--currently the only seed licensed to use Monsanto's Bollgard gene, which repels bollworms and budworms. Farmers who plant Bt save on expensive insecticide, lose less of their crop to the varmints and stand to increase their profits by as much as $50 to $100 an acre. Bt has already captured 13% of the U.S. cottonseed market; George Dahlman of Piper Jaffray in Minneapolis expects it to claim a 40% share within the next four years. As the designer cotton catches on in the U.S. and internationally--there are at least 75 million acres of cotton worldwide--D&P's profits should rise by 30% to 40%, says Mark Wiltamuth of NatWest Securities. Dahlman looks for 45% annual growth in the next three to four years and a $45 stock in 12 months. That's a 21% return, and that ain't hay--it's cotton.

ALL STOCK DATA AS OF MARCH 3