One of the five most heavily shorted stocks in the could spell opportunity for contrarian-minded investors.
"We like Discovery," Erin Gibbs, equity chief investment officer at S&P Global, said Thursday on CNBC's "Trading Nation." "We think they are a transitioning company, we do see some potential earnings growth going forward and valuations really are at three-year lows [and have been] very stable, so we really see this as a good buying opportunity for where they are."
Gibbs points out that while the core cable television business has serious secular headwinds, Discovery is "expanding their revenue base" by building a theme park in Costa Rica, partnering with Sony to offer access to its channels on PlayStation's over-the-top television service and integrating European sports network Eurosport, which it fully acquired in 2015.
Of the five names with the highest short interest as a percentage of their available shares, Discovery is the only one that is up on the year. Topping the short-interest list is Under Armour, which has lost a third of its value this year thanks to disappointing earnings results and the departure of its chief financial officer.
Ticker | Company | Short Int. as % float | YTD price ch. |
---|---|---|---|
UAA | Under Armour, Class A | 26.5 | -33.3 |
JWN | Nordstrom | 23.8 | -0.1 |
DISCA | Discovery Communications, Class A | 19.3 | 7.0 |
TDG | TransDigm Group | 18.0 | -3.6 |
MUR | Murphy Oil | 17.3 | -14.0 |
When asked which of the five he would buy, Evercore ISI's head of technical analysis, Rich Ross, also singles out the media company.
"The charts are with Erin's fundamentals, and I think the technicals suggest that Discovery is actually a long, not a short," Ross said Thursday on "Trading Nation."
"For the last two years, the stock's been forming a very nice rounded base of support that you can see on the chart," he said. "And more importantly, we had this ascending triangle with a pattern of higher lows" which "tends to be a continuation pattern to the upside."
At this point, the stock is "in a strong position" to take out its $29-to-$30 resistance level, "and when it does, it will generate a confirmed buy signal," Ross added. "We like Discovery."