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AlphaProfit Newsletter: July Indicator Update
July 2, 2007

Dear Valued Subscriber,

The AlphaProfit model portfolio returns as of June 29, 2007 are as follows:

  ^* 1H2007 refers to the December 31, 2006 to June 29, 2007 period. During this period, the popular S&P 500 index was up 6.9%.

The AlphaProfit Core and Focus model portfolios are repositioned based on June 29, 2007 closing prices, considering long-term capital appreciation and aggressive-growth investment objectives.

The Repositioning Alert and Model Portfolio Composition documents are now available in the Subscriber Login section of alphaprofit.com. (Note: The markets are scheduled to close at 1:00 p.m. Eastern Time on July 3 ahead of the July 4 holiday.)

The Economy

The growth of the U. S. economy slowed through 2006 and into the first quarter of 2007 when it expanded just 0.7%. The residential housing sector has been a drag on the economy. Manufacturing appears to be perking up again after slowing mid-way in 2006. Growth abroad has been strong led by emerging economies such as those of China and India. While housing continues to present a risk, odds are the U. S. growth rate will likely increase from the pace seen during the first quarter.

Following 17 consecutive 0.25% increases in the federal funds rate that brought the benchmark to 5.25% in June 2006, the Federal Reserve has stood pat for one year. Concerns on inflation persist even though growth has moderated. We believe the Federal Reserve will embark on reducing interest rates only when there is firm evidence that inflationary pressures are beginning to moderate.

Additions

We add Fidelity Select Automotive (Ticker: FSAVX, Risk Rating: Average) and Fidelity Select Materials (FSDPX, Average) to both model portfolios. From a macroeconomic perspective, these selections should likely benefit from a pickup in manufacturing as well as from growth of emerging economies.

Looking at industry-specific factors, foreign auto manufacturers are executing well while the domestic auto industry is restructuring. BMW and Toyota are making impressive strides. Ford and General Motors are taking steps to take current as well as legacy costs out through a host of measures including plant closings and labor negotiations. Both companies are pursuing asset sales to shore up finances. The entry of private equity firm Cerberus Capital Management through the purchase of DiamlerChrysler's Chrysler unit is changing industry dynamics as well.

Prospects for automotive suppliers such as BorgWarner appear to be improving as demand for emission control products stands to increase. Selected auto part manufacturers also are well-positioned to benefit from new product introductions. Like auto manufacturers, auto parts suppliers continue to target emerging economies to garner business.

In the materials sector, producers are consolidating and entering into partnerships. Alcoa has made a hostile offer for Canada's Alcan while Alcan appears to be searching for a white knight in Australia's BHP or U. K.'s Rio Tinto. Freeport-McMoRan Copper & Gold's merger with Phelps Dodge is delivering more than it promised. Dow Chemical has announced plans to form a joint venture with Chevron Phillips to reduce costs.

Prices for industrial gases, fertilizers, and herbicides remain firm thanks to strong demand from emerging markets. The drive towards bio-fuels such as ethanol is providing benefits for Monsanto and DuPont as demand for corn is on the rise.

Reductions and Deletions

We are cutting back on Fidelity Select Software & Computer Services (FSCSX, Above Average) in the Core model portfolio and removing this fund from the Focus model portfolio. Following the launch of Microsoft's Windows Vista operating system to consumers in January, the early excitement is beginning to wear off. We expect Microsoft to benefit substantially from Vista over time. The software space continues to consolidate with such activity being most notable off-late in the Internet advertising space. We believe deal activity in the software space will continue to provide value-addition opportunities for investors.

While Vista is selling at a good clip, the benefit has not percolated to computer hardware manufacturers. Sales of Vista-based PCs in the U. S. have been rather subdued. With the outlook for enterprise IT spending less than stellar, we are removing Fidelity Select Computers (FDCPX, Above Average) from both model portfolios.

We are removing Fidelity Select Paper & Forest Products (FSPFX, Average) from both model portfolios. While the paper & forest products group continues to offer value-creation opportunities from restructuring, corporate earnings outlook here appears less attractive than at the start of the year. A weak housing market has led to slackening of demand for wood products and is impacting the economics of companies in this group.

Continuing Positions

Gold mining shares have found the going tough since the start of the year even though bullion prices are around where they started. The recent rise in U. S. interest rates has reduced the appeal of gold as an inflation hedge. With the U. S. continuing to run a substantial current account deficit, the threat of inflation rising from a depreciating greenback remains. We continue to favor including gold in modest doses as part of a diversified portfolio and retain Fidelity Select Gold (FSAGX, Above Average) in the Core model portfolio.

Sectors and industry groups worthy of over-weighting continue to remain relatively few in number as many of them appear just as attractive as the overall market itself. With overseas economies growing more rapidly than the U. S., we prefer exposure to large-cap multinationals and include the Fidelity Spartan 500 Index Fund (FSMKX, Below Average) to achieve a degree of diversification in the Core model portfolio.

Sector Portfolio Indicator and Market Outlook

Following the repositioning of the model portfolios, the AlphaProfit Sector Portfolio Indicator is rated 'Buy'. This implies current prices are good to trade at. In the near-term, we suspect inflation and housing indicators will likely drive volatility in equity prices. Starting around mid-July, reports of second quarter earnings will draw keen attention.

The investment thesis as well as key risks for Fidelity Select Automotive and Fidelity Select Materials along with the outlook for continuing positions included in the model portfolios will be elaborated in the July Report due for publication on Thursday, July 12.

Best regards,
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 investment advice. 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.

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