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AlphaProfit Newsletter: January Indicator Update
January 2, 2009

Dear Valued Subscriber,

The AlphaProfit model portfolios were repositioned based on December 31, 2008 closing prices. The Repositioning Alert and Model Portfolio Composition documents are available in the Subscriber Login area of alphaprofit.com. Here is a summary of the considerations that resulted in the repositioning changes.

Overview

Economies in the U. S., Japan, and several European nations are in recession. Measures of housing, manufacturing, and retailing activities are in a slump. The deterioration in business and consumer sentiment has led to a rapid rise in the unemployment rate.

The Federal Reserve has lowered short-term interest rates to a record low 0% to 0.25% range and is taking steps to increase aggregate demand. The government has bailed out several financial institutions and automakers. President-elect Obama is expected to lay out a stimulus package approaching as much as $1 trillion with the goal of creating or saving 3 million jobs.

Against this backdrop, we take a two-pronged approach of shielding investment portfolios from the vagaries of the economy while providing exposure to potential upside. Our recommendations include selections from the consumer discretionary, health care, industrial, and information technology sectors.

Consumer Discretionary

We believe businesses in the consumer discretionary sector will benefit if the U. S. government's efforts to stimulate the housing market are successful. Relief from rising fuel prices should be a plus. Companies engaged in industrial construction will likely benefit from Obama's stimulus plan. Meanwhile, stock valuation metrics are particularly compelling in the housing and retailing groups.

The preferred mutual funds and exchange-traded funds (ETFs) to play the construction & housing, consumer discretionary, and retailing investment thesis are as follows:

Construction & Housing:

•  Fidelity Select Construction & Housing (Ticker: FSHOX, Risk Rating: Below Average)

•  50% SPDR S&P Homebuilders (XHB, Average)+50% PowerShares Dynamic Building & Construction (PKB, Below Average)

Consumer Discretionary:

•  Fidelity Select Consumer Discretionary (FSCPX, Below Average)

•  Consumer Discretionary Select Sector SPDR (XLY, Below Average)

Retailing:

•  Fidelity Select Retailing (FSRPX, Below Average)

•  SPDR S&P Retail (XRT, Below Average)

Health Care

Health care and pharmaceutical companies generally tend to be recession-resistant. We are adding investments in the health care sector and pharmaceutical group to our current recommendations in the biotechnology and medical equipment groups. Merger activity in the form of pharma-pharma and pharma-biotech combinations is likely to perk up when credit availability improves.

The preferred mutual funds and ETFs to play the biotechnology, health care, medical equipment, and pharmaceuticals investment thesis are as follows:

Biotechnology:

•  Fidelity Select Biotechnology (FBIOX, Above Average)

•  SPDR S&P Biotech (XBI, Above Average)

Health Care:

•  Fidelity Select Health Care (FSPHX, Average)

•  Health Care Select Sector SPDR (XLV, Below Average)

Medical Equipment:

•  Fidelity Select Medical Equipment and Systems (FSMEX, Below Average)

•  iShares Dow Jones US Medical Devices (IHI, Below Average)

Pharmaceuticals:

•  Fidelity Select Pharmaceuticals (FPHAX, Below Average)

•  PowerShares Dynamic Pharmaceuticals (PJP, Below Average)

Industrials

We selectively include three groups from the industrials sector: air transportation, environmental services, and transportation. As 'early cyclicals', air transport and transportation companies are likely to be among the first to benefit from an economic upswing. The 72% decline in the price of oil from its 2008 high should aid operating economics before any broad economic recovery gains traction. Ongoing consolidation in the environmental services group has resulted in a concentrated industry providing pricing power to major players like Waste Management and Republic Services.

The preferred mutual funds and ETFs to play the air transportation, environmental services, and transportation investment thesis are as follows:

Air Transportation:

•  Fidelity Select Air Transportation (FSAIX, Average)

•  In the absence of a pure-play ETF, we recommend an equal weight mix of Boeing (BA), Precision Castparts (PCP), Southwest Airlines (LUV), & United Parcel Service (UPS) with a Below Average risk rating.

Environmental Services:

•  Fidelity Select Environmental (FSLEX, Below Average)

•  Market Vectors Environmental Services (EVX, Average)

Transportation:

•  Fidelity Select Transportation (FSRFX, Below Average)

•  iShares Dow Jones Transportation Average (IYT, Below Average)

Information Technology

IT Consulting & Services is among the least cyclical groups within the information technology sector as outsourcing service providers and payroll processors enjoy relatively stable revenue streams from long-term contracts.

The preferred mutual fund and ETF to play the IT Consulting & Services investment thesis are as follows:

•  Fidelity Select IT Services (FBSOX, Below Average)

•  In the absence of a pure-play ETF, we recommend an equal weight mix of Accenture (ACN), Automatic Data Processing (ADP), Alliance Data Systems (ADS), & MasterCard (MA) with a Below Average risk rating.

Sector Portfolio Indicator and Market Outlook

After trading down nearly 52% from its October 2007 record through November 20, 2008, the S&P 500 has partly recouped losses to end 2008 with a 37% decline for the year. In recent weeks, the market has shown a tendency to either ignore or take bad news in stride and rally in its face. The intensity of panic selling seen in the fourth quarter of 2008, attractive valuation, and high levels of cash on the sidelines suggest that long-term equity investors will likely be rewarded well in the years ahead.

Following the repositioning of the model portfolios, we rate the AlphaProfit Sector Portfolio Indicator 'Buy'. This implies current prices are generally good to trade at. That said, considerable uncertainty remains on the depth of the recession and timing of the recovery. As outlined in the December 22 Bulletin, we urge you to think carefully about the amount allocated to equities in your total investment portfolio.

In the near-term, corporate comments on 2009 earnings outlook, specifics of Obama's stimulus plan and fourth quarter 2008 earnings performance are likely to be key drivers influencing stock prices. Stock prices can work their way higher if the economy stays on track towards recovering in the second half of 2009. A delay in this timeline can cause equity prices to probe their 2008 lows. In general, we believe it will take 'a lot of bad news' for equity prices to materially break their 2008 lows.

Model Portfolio Performance

The AlphaProfit model portfolio returns as of December 31, 2008 are as follows:

Stock recommendations along with the investment thesis and key risks for the recommended sectors and industries will be included in the January Report due for publication on Monday, January 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 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.

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