Dear Mr. Berko: Would you recommend Allete, which pays 4.3 percent? I think this might be a good stock to put $20,000 from a certificate of deposit that came due yesterday. It’s a utility stock, and utility stocks are supposed to be safe investments. My wife wants me to buy Verizon because her brother works for that company in Duluth, Minn., and because we already own 50 shares. What should I do?
— EP, Rochester, Minn.
Dear EP: “Allete” is a rather froufrou name to paint on all those utility trucks. I can’t imagine what was wrong with the name Minnesota Power. But considering society’s zest for tattoos, Facebook/Twitter and body piercing, it seems that dumb is the new normal. “Allete,” a French word meaning “winged,” is also a popular name Parisian mothers give their baby girls. And though this Allete ain’t a baby girl, its disappointing stock performance this year suggests it’s managed by one.
Allete has been nominated (by me) as one of the poorest-performing electric utility stocks in 2014. Utility stocks have increased their values by an average of 10 percent this year, but Allete’s share price has managed to remain the same. And why those bozos in Duluth changed the name to Allete (ALE-$52) is an enigma that not even the angels in heaven understand — though its ticker symbol could be a clue.
Actually, I like the company! I admire its beautiful, cold, rugged 26,000-square-mile service area that keeps 146,000 customers in northeastern Minnesota warm in the wintertime. And the summers are never a power problem there! However, this area is rich in mineral deposits, so 50 percent of ALE’s revenues derive from industrial customers, including timber companies, paper-producing companies and companies that mine and process taconite (low-grade iron ore). And each of ALE’s 11 customers, five of whom are taconite-processing facilities, requires more than 10 megawatts of generating power. Meanwhile, several companies that deal with natural resources are developing new projects in northeastern Minnesota. PolyMet Mining, Essar Steel and Magnetation are preparing to build major industrial projects in ALE’s service area. And when these projects are completed, they’ll require more than 625 MW of new power, which represents about 30 percent of ALE’s current generating capacity. And kudos to ALE for having, according to the Edison Electric Institute, the fourth-lowest retail rates in the nation.
