Yesterday was quite a day for investors involved in Synairgen (LSE: SNG). The Synairgen share price rocketed 420% over the course of one day! This was mostly down to positive results surrounding a potential Covid-19 treatment. The trial undertaken showed that those given the treatment had a 79% better chance of recovery than those who’d taken a placebo instead. Even though I applaud this success, as an investor there are several reasons why I would actually invest elsewhere in top pharma stocks, instead of in Synairgen.
Without trying to be boring, there’s a economic theory called efficient market hypothesis. In short, one of the points it makes is that the stock market perfectly takes on new information and prices it into the stock over a very short period. After this, the share price completely reflects any publicly available information about the stock. From that point of view, the huge rally yesterday was the market pricing in the success of the treatment. So there could be very limited further upside in the Synairgen share price.
This would make me look towards a stock such as AstraZeneca instead. The vaccine under development there (AZD1222) is still going through trials, but it looks promising. So if I was an investor looking to profit from a successful vaccine or treatment announcement and subsequent production, I’d look to invest here instead.
If we’re being honest, most of us hadn’t heard of Synairgen at the start of this year. Sadly, the fate of the firm after the rally of yesterday very much depends on the treatment. If it doesn’t deliver, then investors could be in for a tough long haul. That’s why I tend to stay away from small-cap, AIM listed firms.
So instead of investing in that share price, I’d look to an established top pharma stock to buy now instead. For example, take GlaxoSmithKline. The FTSE 100 stalwart has a market capitalisation of over £82bn. Synairgen has a market capitalisation of £282mn. As that’s sinking in, I’ll keep going. GSK directly invested in a firm called CureVac earlier this year, so would stand to gain from any vaccine made there. Yet even without a vaccine, GSK is a profitable firm that investors don’t have to worry about being a flash-in-the-pan. Also, don’t forget that GSK is still paying out a dividend to investors.
Synairgen share price: better alternatives
If you did manage to invest in Synairgen before the announcement, or even during the course of the day, you likely reaped huge rewards. But for those looking to buy now, ask yourself why. Just having a fear of missing out is not a good enough reason to invest in a stock like this. Rather, take a step back and look at it objectively. If you can’t back up the reasons why you’d invest in the Synairgen share price now, then I’d suggest looking at other firms instead. AstraZeneca and GSK are both top pharma stocks that get you similar exposure, but with much lower risk. That is where I’d be looking to target right now.
jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.