The best stock strategy in the second quarter could simply be putting money to work in sectors that lagged in the first quarter.
JPMorgan chief U.S. equity strategist Tom Lee, in a note, said that trade has worked in four of the last four years, and in 11 of the last 13 years. The years in which the strategy failed were 2002 and 2008, both down years for the market.
So this year, Lee suggests investing in first-quarter laggards, specifically materials and technology. Other factors also support outperformance by these sectors, he argued. The price-to-earnings ratios of these sectors are their lowest levels in a decade, even as analysts expect to see earnings per share growth of 17 percent for materials and 10 percent technology—well above the S&P 500.
For contrarians, a level of bearishness abounds in these sectors. For instance, short interest for both materials and technology has surged to multi-year highs, and for technology, it's at the highest level since 2006.