Today we continue to flesh out a handful of industry forecasts made in a recent commentary. We talked about the methodology on Wednesday, and put the strategy into action on Thursday by making a couple of consumer electronics stock picks. Today we’ll apply the same principles to pick some entertainment stocks…a surprisingly strong sector lately.

As before, our interest in entertainment stocks is rooted in poor long-term performance, but strong short-term results. The aim is to find stocks that are (1) undervalued, and (2) starting to outperform the rest of the market.

Wednesday’s industry-strength table isn’t the Holy Grail in that endeavor, but it’s a great place to start. Why? It can show investors trends they may not have found on their own. And, as obscure as the broadcast and entertainment industry is, today’s picks may be prime examples how the strategy finds undiscovered opportunities.

We’ll start with the chart of the Dow Jones Entertainment & Broadcasting Index (DJUSBC).

Between last year’s peak and this year’s low, the group sank about 25%….a fairly significant devaluation. From this year’s low, the group has gained 16%, thanks to a rebound at a key support line. Still, there’s a lot of room for more recovery. How much? A move back up to last year’s highs around 500 is possible, which would be a 16% move from current levels. That’s a lot more potential than many other groups are offering, largely in part to the size of the loss a few months back.

Of course, the leading stocks in the group may do even better than that. How do you find them though?

We’ll stick with yesterday’s precedent and look for a good fundamental pick as well as a good technical pick. Just bear in mind that the very best trading opportunities often have positive elements of both schools of thoughts.

One broadcast/entertainment stock with a great-looking fundamental snapshot is Dish Network (DISH). Revenues have grown at an 18% clip for the last five years, and earnings have improved by 36% over the last twelve months. The P/E is 17.8, and the P/S ratio is 1.34….all good numbers.

Those numbers weren’t enough to prevent the stock’s decimation between late last year and early this year though - the same trouble spot the whole sector went through. In Dish’s case though, the market may have thrown the baby out with the bath water. Of course, if this past week’s rebound is any hint, the market also figured out their mistake.

From a technical point of view, Shaw Communications (SJR) may be worth a look. For some reason. Shaw was hit particularly hard when the rest of the industry was too. The rebound so far has been great as well, but doesn’t even begin to rival the stock’s trading level before the dip.

If you look further back on the chart you can see the market has no problem liking and paying for this stock. The attraction here is a possible repeat of the move we saw in 2006 and 2007. Half of that would still be a great move though.

The sweet part about this chart is that the company actually has some impressive fundamentals to go along with it. The P/E is 15.0, the ROE 30.8%, and profit margins come in at 28%.

As before, these are two possibilities out of hundreds, so don’t assume these are the absolute best choices. They might be, but a little more digging could find something better. The trading strategy and method is the point we’re trying to illustrate.

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