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Tuesday, October 31, 2006

Aerospace & Defense

With only a few more days before the mid-term elections, investors are considering the potential ramifications of a change in power on the markets. There are several market segments that might be impacted by the Republicans retaining control of the House and Senate and one that I find interesting is the Aerospace / Defense sector. This sector has done relatively well lately and it will be interesting to see what happens over the next few weeks. I am by no means a political expert, and I have no idea if there is any correlation, but it makes sense to me that political agendas would have a direct impact on military spending, which in turn would impact price performance.

Let's assume though that even if the Democrats were to take over, that military policy in Iraq, Afghanistan and elsewhere will be relatively unchanged. If that's the case, then it might make sense to look to the A&D sector for alpha. We have sixteen companies within this sector, with ten currently “buy” recommended, three “neutral” recommended and three “sell” recommended. Our highest-rated A&D company today is Sequa Corp. (SQA-A 10/5/06) which is up nearly 11% since the “buy” recommendation.

Other companies of note today include: Curtiss-Wright Corp. (CW 10/20/06), Precision Castparts Corp. (PCP 9/20/06) and Triumph Group Inc. (TGI 10/30/06).

An interesting A&D company just beginning its bullish trend in October is Kaman Corp. (KAMN 10/26/06).

Short-Term Technical Indicators – The DJIA MACD crossed below its 9-Day Moving Average, which typically reflects the development of a short-term bearish trend.

Long-Term Market Model – Bullish since August 23rd.

Investor Sentiment – The VIX has edged higher ever so slightly for three days in a row and is again trading above last week’s level.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation
Date = Date of AAS “Buy” Recommendation

Top Rated Major Market Derivative – Russell 2000 (IWM 10/9/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones Real Estate (IYR 6/30/06)

Today’s Top “Buy” Recommended Stocks
  • OM Group Inc. (OMG 8/11/06)
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • Harman International Industries Inc. (HAR 10/9/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • Centene Corp. (CNC 10/20/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • Manitowoc Co. Inc (MTW 8/10/06)
  • Goldman Sachs Group Inc. (GS 9/12/06)
  • Veritas DGC Inc. (VTS 7/28/06)
  • Piper Jaffray Companies (PJC 10/4/2006)
Today’s Top “Sell” Recommended Stocks
  • Apollo Group Inc. (APOL 10/13/06)
  • Carbo Ceramics Inc. (CRR 2/7/06)
  • Legg Mason Inc. (LM 10/11/06)
  • Express Scripts Inc. (ESRX 9/22/06)
  • Universal Forest Products Inc. (UFPI 5/24/06)
Today’s Top “Buy’ Recommended Rydex Mutual Funds
  • Dynamic OTC (RYVYX 8/16/06)
  • Russell 2000 Advantage (RYMKX 10/5/06)
  • Real Estate (RYHRX 7/6/06)
  • Dynamic S&P 500 (RYTNX 8/3/06)
  • Internet (RYIIX 8/31/06)

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