Get ready to profit from the limited comeback of biotechnology stocks:
The world's only self-contained artificial heart is made by a company whose beaten-up stock you can purchase for the price of a Big Mac Value Meal!

"Buy it for US$4.27 a share–sell it at US$12!"

New technologies are great, no doubt about it! Especially if you’re an analyst. Unencumbered by dull fact and dreary reality, you can analyze to your heart’s content… and speculate about long-forgotten concepts of "market share," sales potential, and projected revenues until the cows come home.

At some point or other, however, reality has a way of catching up with you.

That can be a minor embarrassment–for example, if you’re the chief promoter of a telecommunications company that arranged its "short-term" market penetration parameters around the erroneous assumption that every man, woman and child in the United States would be using one of its highly specialized devices within a half dozen years after the product launch. (I remember the Taipan team investigating a case just like that in the early 90’s.)

Or it can be a major economic cataclysm. Look at the late and lamented Internet Bubble, which derived much of its inflated valuation from the daily affirmation that somehow, somewhere, all those "clicks" and "eyeballs" would be "monetized" to generate unheard-of revenue flows that would justify paying US$150 a share for a company whose sole bestselling product was a sock puppet of its promotional mascot.

Diamonds in the rough

Of course, overly optimistic sentiment about a technology stock or sector more often than not is due to the spin of the market and the media. And frequently the stock of such a company provides at least two phases of opportunity for investors to profit from it: First, on the emotional, publicity-driven upswing. And a second, a year or two later, when the froth has disappeared, the company has survived its first major setbacks and is about to start generating honest-to-goodness revenues.

If you’ve been following the activities of the Taipan brain trust at all over the last couple of years, you may know that one of our editorial board members specializes in identifying opportunities just like that.

Christian DeHaemer, who joined our staff back in 1997 as the original Taipan "World Investor," has perfected an analytical tool that pinpoints the various phases or "zones" companies go through, from their initial public offerings through the "widowmaker" phase of flagging publicity into a "red zone of profits"–right before the company stages a stock market comeback based on sales and revenues rather than irrational exuberance.

Christian’s success with this "Red Zone" analysis–which coincidentally is the name of his trading service–has been so stunning over the last couple of months that he had my undivided attention when he introduced his February stock recommendation during our last editorial board meeting. Here is his report: