I am regularly on the lookout for the best penny stocks for my portfolio. Some of these small caps offer huge upside potential. They are priced low due to the risks involved and challenges they face, however. One stock I am interested in is Zephyr Energy (LSE:ZPHR). Should I buy or avoid it?
FTSE AIM incumbent
Zephyr Energy is an investment platform formed to undertake economically attractive oil and gas projects. It focuses entirely on developments in the Rocky Mountain region of the US. Zephyr is headed up by a management team with decades of experience in the US oil and gas industry. This experience allows it to pick and focus on the best projects available.
I am aware that in the longer term, the demand for oil is on a decline. In the short term, however, demand remains high. I believe that with the world economy on a rebound after the pandemic, demand will surge going forward.
If oil prices remain within their current range or go higher, Zephyr could be a good value play in my opinion. As I write, shares are trading for 6p per share. This time last year, shares were trading for less than a penny, 0.78p per share to be specific. This equates to a 660% share price increase. Penny stocks often experience such high increases from time to time.
2021 a breakout year for Zephyr?
2021 has been a promising year for Zephyr. I believe its rise in share price can be attributed to some of its progress and positive developments on its project and in the boardroom.
Firstly, in 2020, Zephyr introduced a new management team which resulted in a restructure and a rebrand of the company. I believe this has provided the firm with a new focus and new directors have played a vital part in 2021’s successes to date.
Last month, Zephyr announced drilling operations had been completed at its most prominent site in Utah. It hit its primary and several secondary targets at the Cane Creek reservoir. This drilling indicated hydrocarbon charge “across its entirety.” Natural gas and crude oil are mixtures of different hydrocarbons. This is a positive development in my opinion. A further update since this time with further tests has resulted in Zephyr beginning to finalise the well design which means things are moving forward nicely.
Penny stocks have risks
Zephyr Energy’s primary issue for me is that a lot of its promise is based on projections, drilling reports, and potential. For me, this means I may not see much of a return on my investment if I were to buy shares right now as no oil has emerged just yet.
Overall, I would be willing to buy a small amount of Zephyr shares for my portfolio at 6p per share. At such a cheap price and with the progress made on its projects to date, I would be willing to take the risk. Because of the risk involved, I wouldn’t invest hundreds of my hard earned cash. I believe it could be a good buy right now but wouldn’t lose sleep if it didn’t work out based on current levels.