Typically, the media sector of the market is dominated by the Mouse House, Disney (DIS). Further down the list of media companies is an attractive alternative for us looking for potential breakout candidates as Discovery Communications (DISCA) appears to be resting for its next rouse higher.
For those unaware, DISCA is the non-fiction media company responsible for channels like Discovery Channel, TLC, Animal Planet and the Science Channel among others. The company is one of the beneficiaries of the popularity of lower-cost “reality TV” with programs like “Moonshiners”, “The Deadliest Catch” and “Mythbusters” that attract huge followings.
The company is rebounding from some weaker-than-expected earnings results over the last three quarters as revenue is picking-up on a quarterly basis. What we really like is the technical and sentiment picture of the stock.
Click to Enlarge Judging by the sentiment indicators like short interest and analyst recommendations, the stock should be in poor shape. Currently, only 36% of the analysts tracking the stock have it ranked a buy or strong buy. According to Yahoo Finance, the last analyst activity was a downgrade more than a year ago. Considering that the stock is up more than 50% since that downgrade, we think there’s a chance we may see some upgrades soon. Similarly, the shorts have been hammering the stock as more than seven times the average daily volume is tied up in short bets against the company.
The stock has been consolidating between $77 and $80 since March and is now looking ready to break above its glass ceiling. This, of course, would get the shorts covering their position and the analysts thinking hard about upgrades, both of which would help the stock move even higher.
Consider buying shares of DISCA at their current level with a target of $90 over the next few months. Options traders might consider the October 80 calls as a nice long-term leverage play on the stock.
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