Tech may lead TSX rebound, says AlphaNorth’s Palmer

Calling bottom. The recent correction is a clear buying opportunity says Steve Palmer, CEO of AlphaNorth Asset Management.

While the call is not in and of itself unusual, the proposed path may be. Palmer says tech, not resource may lead the way this time.

Talking to the Financial Post’s Jonathan Ratner on Friday, Palmer says he has lowered his funds exposure on resources to 56% from 75% earlier this year.

Palmer says the market became “…overheated” because “everyone was just focused solely on resource deals”. He says he now thinks “technology names offered a better risk-reward.” The Toronto based fund manager thinks the recent market activity on the TSX Venture is similar to what we saw during last summer’s 21% pullback. His technical analysis says it’s time to buy.

And these days when Palmer speaks, the street takes notice. As of their last update in May, The AlphaNorth Partners Fund was up 38.1% so far this year, and a whopping 165.6% over the past calender year. A $100,000 investment in the fund in January 2008 is now worth just under $400,000. Some of the gain this year can be attributed to AlphaNorth holding Intertainment Media (TSXV:INT), which rocketed from pennies in February to over $1.50 in April, before a recent pullback.

Palmer highlighted a couple of the fund’s holdings he thinks warrant special attention.

Zecotek Photonics (TSXV:ZMS), a sponsor of this publication, grew out of research conducted at the University of British Columbia. Zecotek’s 41-view 3D2D Display is not only 3D without the cumbersome glasses, it’s also a safer solution. The “motion parallax” and freedom of position for the observer inherent in Zecotek’s solution eliminates the sense of imbalance and dizziness during normal observation which can occur with polarized and shutter glasses.The technology has a range of applications including use in geophysical data, medical imaging, scientific research, pharmaceutical industry other industrial and military applications.

Functional Technologies (TSXV:FEB), another Palmer holding, is a company in the early stages of commercializing yeast and algae-based technologies. Investors flocked to the company in February after it received an FDA “no questions” letter on their Phyterra product, a hydrogen sulphide-reducing yeast that is gaining traction in the wine industry.

Functional’s four hydrogen-sulphide-yeast reducing strains are just now entering the market. The company has already completed sales to over 75 wineries, mostly in California. This market could be a lucrative one for Functional, as the technology may be able to put a real dent in the amount of spoilage that occurs from hydrogen sulphide in fermentation. The company estimates that the size of the addressable market in wine and other alcoholic beverages exceeds a billion dollars.

But the opportunity in wine may be dwarfed by the market in baker’s yeast, which could be many times greater. To that end, the company recently confirmed that “several international food companies” are in various stages of conducting tests to confirm the effectiveness of Functional Technologies’ acrylamide reducing yeast in baked and potato products.