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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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