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Back in 2001, the western energy crisis made things really rough for Puget Energy, Inc. (NYSE: PSD), along with a number of other energy companies. Ever since then, the company -- the oldest and largest utility company in Washington State, delivering natural gas to 700,000 customers and electricity to a whopping one million -- has been working to rebuild. The stock price hasn't gone too far up or down and the dividend has been flat for the past few years, but I think this company may be ready to grow.

One of the biggest problems for PSD has been the fact that it only generates about 30% of its energy supply through its own holdings. This means the company has to purchase a great deal of its energy, and is thus dependent on volatile markets. But PSD has invested $600 million in wind-generation facilities, and on November 3 it announced the purchase of the Goldendale facility from Calpine. The latter is a two-year old facility that uses natural gas and steam cycles to produce energy at a lower cost and with lower emissions -- a financial and environmental plus.

The day before this deal was announced, PSD issued its third-quarter results. Revenues climbed over the prior year's results, as did the first two quarters, and the net income for the quarter was up 250%, from $5.9 million to $15.9 million. This was due in part to improved margins on the electrical side, which will be lower in the fourth quarter due to cyclical patterns.

Regardless of fourth-quarter results, I think this is one for the long term. PSD's investments should start to improve its margins; it also operates in a region that is growing and should provide an ever-increasing customer base. In addition, it has a modest dividend to protect against risk. This dividend has been flat for years, and may be due for a rise as well.

Type of stock: A well-established energy company with a solid dividend and a relatively undervalued stock price.

Price target: At $23, this company is on the higher end of its 52-week range, but I think it's worth buying now. The company hasn't gone below $20 for years, and I think there's upside to $24.

PSD 1-yr chart:

PSD chart

Source: Puget Energy: Sound Stock For the Future