J.P. Morgan Says Apple and Other Underperforming Stocks Should Lead the Market in Second Quarter (AAPL, BRCM, CHKP, ESRX, MYL, TASR, CHS)

With earnings season kicking off next week and a plethora of challenging global news hitting the tape, investors are becoming a touch skeptical of the current rally. Are we hitting a bump in the road after strong gains and looking to rebound after a sell-off? Or are more obstacles currently present that could derail the march to the secular bull market?

J.P. Morgan Chase & Co. (NYSE: JPM) strategist Thomas Lee and his staff have concluded that leading stocks that underperformed in the first quarter of this year will pick up the baton and become the market leaders in the second quarter. In a research report released today, the mega Wall St. bank points out that the two worst-performing sectors in the first quarter have outperformed in the second quarter of the year in 2009, 2010, 2011 and 2012. They went on to point out that has been the case in 11 of the 13 years since 2000.

The sector with the worst performance for the quarter was technology. The team at J.P. Morgan point out that the tech sector has underperformed the other stock sectors by 11% (total return) over the past year. In addition, tech’s forward price-to-earnings (P/E) ratio is below the market’s for the first time in 17 years. For most investors, those would seem contrary statistics, given the explosion of smartphones and tablet sales.

Naturally, tech dominates J.P. Morgan’s list of stocks to buy in today’s report.

The biggest call of all, of course, is to buy Apple Inc. (NASDAQ: AAPL). The darling of portfolio managers for the past five years suddenly has been painted as a bumbling, unfocused tech company with no strategy and too much cash. The Thomson/First Call consensus target for the tech giant is $600. That would represent a 40% move from current levels.

Wireless chip leader Broadcom Corp. (NASDAQ: BRCM) is on the list, and right in the middle of its 52-week trading range, while markets touch record highs. With products that offer voice, video, data and multimedia connectivity in the home, office and mobile environments, Broadcom is a stock to buy. The Wall St. consensus target estimate is $40.

Security software leader Check Point Software Technologies Ltd. (NASDAQ: CHKP) is poised to be a second quarter leader. It is trading just 10% above a 52-week low, and the consensus price target for this cyber security leader is $55.

A nontech company that makes the J.P. Morgan list is Express Scripts Holding Co. (NASDAQ: ESRX). With strong earnings and cash flow, and an aging population more and more dependent on medication, the pharmacy business is expanding at a rapid rate. The consensus estimate for the stock is $64.50.

Generic drug leader Mylan Inc. (NASDAQ: MYL) could prove to be a second-quarter leader. With yet another generic product launch announced yesterday for Zovirax ointment, Mylan is on track for a strong first quarter. The consensus price estimate for the stock is $33.

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Stun gun maker TASER International Inc. (NASDAQ: TASR) always provides a little controversy. It also shocked the street with strong first-quarter bookings. The consensus target for this volatile name is $10.50. That would represent an almost 40% move from current trading levels.

Former high flyer and specialty retailer Chico’s FAS Inc. (NYSE: CHS) may be ready to step back into the limelight. With popular stores that include Chico’s, White House/Black Market, Soma Intimates and Boston Proper, this favorite of the ladies could have a strong second-quarter move. The consensus estimate for the stock is $20.

Although the J.P. Morgan list is dominated by technology, drug and retail stocks also look ready to take over market leadership. After such a strong run, it just makes sense for investors looking to stay involved in equities, to rotate to names with more headroom to move.

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