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Out of the five most hated stocks in the S&P 500, one could be a bargain

One of the five most heavily shorted stocks in the S&P 500 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."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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