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Three Small-Caps on This Fund Manager's List

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Steve Palmer Steve Palmer, founding partner, President and Chief Investment Officer of AlphaNorth Asset Management, talks with Streetwise Reports about several small-cap companies from three sectors that he has been following.

Streetwise Reports: Steve, thanks for joining us today. Let's start with some of the trends that you see in the market that would be useful for our investors to know about.

Steve Palmer: In the Canadian junior market, the predominant theme has been cannabis for months now, since the spring. There's basically no interest in anything but cannabis. And there are new deals daily sucking up a lot of investor capital, and it has been working. The space has performed very well year to date. But it's my view that it's a bubble that will end badly. That will be good for the other sectors, too, because then people will actually pay attention to other sectors that have been neglected for quite a while.

SW: What sectors do you think could benefit from cannabis' bubble bursting?

SP: The commodities. Gold has not performed well. It looks like it's put in a bottom here. It's only been a few weeks, but it seems to have turned. Also, base metals are usually strong performers when we have strong global growth. Other sectors like technology and biotech, where we've been spending a lot of time, also could benefit.

SW: What are some companies that have your attention right now?

SP: There is Avivagen Inc. (VIV:TSX.V), which we've owned for quite a while. It's taken some time to get going, but it's had to do a lot of animal trials to prove the efficacy of its product. The product is a livestock food additive of something called OxC-beta, which has similar properties as antibiotics. It allows the animals to be healthier, grow quicker, etc. There have been several trials done in pigs and chickens, and it has shown to be very effective. The company is starting to get orders for the product from Asia. It's had initial orders, and now it's getting repeat orders. So it's an exciting time as things start ramping up with the revenue.

SW: What other companies are you looking at?

SP: We started talking about cannabis, and there's one company that we own that has applications in the cannabis space, but it's not dependent on it, a company called CO2 Grow Inc. (GROW:TSX.V; BLONF:OTCQB). It has a CO2 foliar spray. It basically infuses water with carbon dioxide, which plants need to grow, and sprays it on the plant leaves. It has done some trials including in cannabis, and they have shown to increase the bud value on cannabis plants by 60–75%.

So it's significant for the cannabis players; it's a play on the space. And CO2 Gro is talking about it because it gets people's ears. But there is an even bigger market for vegetables like lettuce. Anything that has a lot of leafy mass particularly would benefit from this technology.

SW: Does it have to be used inside a warehouse or greenhouse? Could it be put on plants in an open field?

SP: Greenhouses often do infuse carbon dioxide into the air, but they can only do it so much because if people have to be in that environment, it's a hazard if the air is too concentrated with carbon dioxide. So there's a limit. CO2 Gro's technology can put way more CO2 between the water molecules and apply them directly on the plant leaf, and it doesn't pose a risk for people. So growers can use it in a greenhouse and improve what they already have. You can't concentrate air outside, so there's no CO2 supplementation happening in any outside growing, but there can be with this technology. For example, in California farmers could potentially add another crop cycle for things like lettuce, which would be huge.

CO2 Gro is at a similar stage as Avivagen, where it's validated the technology in trials and now it's at the early stages of getting contracts and revenue. It has guided to first revenue this quarter.

SW: Is there another company that you would like to talk about?

SP: We have a few investments in the precious metals space. Our largest holding would be White Gold Corp. (WGO:TSX.V; WHGOF:OTCBB), which has recently done well because it has hit a significant discovery in the Yukon. It recently put out more results, 3.8 grams per ton gold over 66 meters. This is among the best drill intercepts in the Yukon, so I'm pretty excited about that one.

SW: Is White Gold still drilling or has it stopped for the winter?

SP: The company is still drilling but it is nearing the end of the typical drilling season in the Yukon. It has lots of assay results still pending.

SW: Is there anything else that you'd like our readers to know?

SP: This is always an exciting time of the year for me and particularly because we've had some market weakness in October and because the small caps' best performing months are December, January and February. So I always encourage investors at this time of year to make sure they get exposure to the small-cap space, especially after a period of weakness. In fact, if you take the average monthly returns for small-caps over the last 37 years, there have been positive returns 81% of the time over the December to February period with an average return of 11%.

SW: Any theory why winter's really strong for small caps?

SP: Tax loss selling usually ends by the beginning of December. There are the typical games that go on with the high closings at the end of the year. There's the Retirement Savings Plan (RSP) money that comes in in January and February, so new money is coming into funds. There's generally more activity in the energy patch because the ground is frozen so they can actually move equipment to do drilling. Those are the kinds of things that may impact that seasonality.

SW: Thanks for your insights, Steve.


Steve Palmer is a founding partner, president and chief investment officer of AlphaNorth Asset Management and currently manages the award-winning AlphaNorth Partners Fund, AlphaNorth Growth Fund and AlphaNorth Resource Fund. Prior to founding AlphaNorth in 2007, Palmer was employed as vice president at one of the world's largest financial institutions, where he managed equity assets of approximately CA$350M. Palmer managed a pooled fund, which focused on Canadian small-capitalization companies, from its inception to August 2007, achieving returns of 35.8% annualized over a nine-year period, which ranked it No. 1 in performance by a major fund ranking service in its small-cap, pooled-fund category. Palmer earned a bachelor's degree in economics from the University of Western Ontario and is a Chartered Financial Analyst.

1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Avivagen. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Avivagen. Please click here for more information. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Steve Palmer: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this interview: None. AlphaNorth funds hold shares of all of companies mentioned in this article. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this interview, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Avivagen, a company mentioned in this article.

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