A Case Study: SURG - CL Equities

Back in February, I was picking up a series of buys and this first group of stocks to analyze are the ones that didn’t work out. One such company is SURG, a leading healthcare company known for its innovative medical devices and strong market position. Intrigued by the stock's potential, I decided to take a position and add SURG to my portfolio. I traded SURG from February 1st, 2024 through February 27th, 2024.

Identifying the Entry Point with SEPA

The SEPA (Specific Entry Point Analysis) strategy, developed by renowned trader Mark Minervini, focuses on pinpointing high-probability entry points with favorable risk-reward ratios. When I first evaluated SURG through the SEPA lens, a few key factors stood out:

1. Trend: SURG appeared to be in a short-term uptrend, having climbed from around $6 per share in the prior week. This aligned with the SEPA requirement for a well-defined upward trajectory.

2. Fundamentals: SURG's recent financial performance and growth prospects looked promising, indicating the company was exhibiting the kind of superperformance characteristics that the SEPA strategy seeks.

3. Catalyst: The company had recently received regulatory approval for a new product, which could have been the type of positive catalyst that the SEPA approach looks for to drive institutional interest.

4. Entry Point: Buying SURG at $7.81 seemed to represent a reasonable entry point, with the stock trading near recent support levels and exhibiting positive momentum.

With these factors in place, the SEPA framework suggested that SURG could be a worthwhile investment opportunity.

Applying the CAN SLIM Principles

In addition to the SEPA analysis, I also evaluated SURG through the lens of the CAN SLIM strategy, popularized by the legendary investor William O'Neil. This comprehensive approach examines several key criteria for identifying winning stocks:

1. Current Earnings: SURG's most recent quarterly earnings report showed solid year-over-year growth of 20%, meeting the CAN SLIM requirement for robust current financial performance.

2. Annual Earnings: The company had demonstrated consistent annual earnings increases of at least 25% over the past 3 years, aligning with the CAN SLIM focus on high-growth companies.

3. New Product: SURG's recent regulatory approval for a new medical device could have been viewed as a positive catalyst under the CAN SLIM framework for identifying companies with new, game-changing initiatives.

4. Supply & Demand: There were signs of increased institutional buying interest in SURG, as the stock had seen elevated trading volume and price appreciation, indicating favorable supply/demand dynamics.

5. Leadership: SURG appeared to be outperforming many of its peers in the healthcare sector at the time of my purchase, meeting the CAN SLIM criteria for targeting industry leaders.

6. Institutional Sponsorship: The stock had attracted ownership from several notable institutional investors, a hallmark of the CAN SLIM strategy's emphasis on strong professional investor support.

7. Market Direction: The overall market environment was relatively strong when I bought SURG, providing a conducive backdrop as per the CAN SLIM approach.

Taken together, these CAN SLIM characteristics painted a picture of a stock that could potentially deliver market-beating returns.

The Outcome and Lessons Learned

Unfortunately, my SURG trade resulted in a 12% loss, as the stock price declined from $7.81 to $6.91 over the course of the trading period. I have no problems with taking this trade. At the time, the market was in a solid uptrend, and this stock met all the requirements of a super performer. It didn’t work out in the end, but as long as I am right more often than wrong and make more when I am right than lose when I’m wrong, everything will work out in the long run.