AlphaProfit Sector Investors' Newsletter: July 27, 2007 Bulletin

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AlphaProfit Newsletter: July 27, 2007 Bulletin

Subject: Credit Squeezes Equity Markets

Dear Valued Subscriber,

The equity markets have run into rough weather in recent days. The market as measured by the Dow Jones Wilshire 5000 Index is down nearly 4.8% since Thursday, July 19. Rising defaults in the sub-prime mortgage market appear to be adversely impacting credit availability for corporate borrowers. As such, businesses exposed most to credit availability have come under pressure. The carnage has been severe among companies speculated to be takeover targets since debt is typically used to finance such deals. Companies working to sell assets to private equity firms have also declined as investors are becoming less certain on such transactions going through.

At an industry group level, housing shares have been major losers. Among the sectors and industry-groups currently included in the model portfolios, automotive and materials have been impacted the most while software has held up better.

Lenders are having difficulty in obtaining favorable terms to finance the leveraged buy-out of most of DaimlerChrysler's Chrysler unit by a private-equity firm. These troubles have rippled through the markets. Even though DaimlerChrysler's stock rallied on the company's statement that the sale will go through, shares of other companies like Ford, General Motors, and Goodyear Tire that are working on selling assets have been dented.

In the materials space, Alcoa recently ran up on speculation that BHP Billiton will make an offer to take over the aluminum giant. With the offer not readily coming through, Alcoa has given back these gains and then some. DuPont's earnings report also turned out to be less than spectacular.

While availability of credit has become somewhat tighter, we believe other factors will come into play in driving stock prices in the automotive and materials groups going forward.

In the auto space, earnings from group heavyweight General Motors due to report on July 31 will likely impact near-term performance. Looking farther out, outcome from negotiations with the United Auto Workers that started last Friday will be a key factor. We believe the Detroit automakers will be successful in effecting material changes in their contracts with the UAW and thereby lowering costs.

In the materials group, outlook for commodity prices and demand from emerging markets will be important. Comments from 3M, Air Products, and Dow Chemical support our optimism here.

Our theses for including automotive and materials stocks in the model portfolios continue to hold. We are leaving the composition of the model portfolios unchanged at this time. Subscribers underweighted vis-à-vis their targeted asset allocation can use this period of weakness to invest cash and work towards the targeted asset allocation. The AlphaProfit Sector Portfolio Indicator will be updated next on August 1.

Sincerely,
Sam Subramanian
AlphaProfit Investments, LLC
Ideas. Insights. Results.
http://www.alphaprofit.com

Notes: The AlphaProfit Sector Investors' Newsletter™ is for information purposes only. AlphaProfit Investments, LLC is not soliciting any subscriber to buy or sell any security. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Before buying or selling any mutual fund, exchange-traded fund, security, or investment, read the prospectus carefully. For securities held in brokerage accounts, read the broker's specific terms and conditions which apply to trading of the securities. AlphaProfit Investments, LLC cannot and does not give any assurance that the present or future model portfolio changes will be profitable. Past performance is not a guarantee for future results. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any of the mutual fund companies, brokers, or entities connected with the exchange-traded funds mentioned in the newsletter. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of this newsletter. No part of the AlphaProfit Information may be reproduced or re-transmitted in any manner without written permission of AlphaProfit Investments, LLC.