3 Top Stocks Wall Street Is Overlooking

MarketsMotley Fool

Like it or not, the investing world tends to listen closely to what analysts on Wall Street have to say about any given stock. But for astute investors who are able to recognize opportunities where Wall Street doesn't, the financial reward can be staggering.

So we asked three top Motley Fool contributors to each find a stock that they believe Wall Street is overlooking. Read on to learn why they like Pandora Media (NYSE: P), Kinder Morgan (NYSE: KMI), and Bitauto Holdings (NYSE: BITA).

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Pandora could be poised for a quarterly beat

Steve Symington (Pandora Media): Shares of Pandora Media fell hard in February after the music-streaming leader delivered strong quarterly results but followed with disappointing forward guidance. And on the eve of Pandora's first-quarter 2018 report this Thursday after the market closes, I'm going out on a limb to say that investors could do very well by betting its long-term story remains intact.

To be clear, the midpoint of Pandora's Q1 guidance calls for modest 5% year-over-year revenue growth, primarily as the company expects a continuation of ad-revenue headwinds similar to those it has endured since the second half of last year.

But according to Pandora's new CEO -- who quickly began implementing a number of changes to reinvigorate growth ranging from investments in Pandora's ad tech, marketing, distribution partnerships, and new content launches -- most of their new growth initiatives are "still in early stages, and their impact will build over the course of 2018."

There is already solid growth in paid subscribers -- the number of listeners opting for Pandora Plus and Pandora Premium increased 25% year over year last quarter, driving a 63% increase in subscription revenue. So, I think there's plenty of room for an upside surprise when Pandora's results hit the wires.

A jumping dividend

John Bromels (Kinder Morgan): You'd think Wall Street would pay attention to the world's largest pipeline owner, Kinder Morgan, especially after the company announced a stellar Q1 2017 and boosted its dividend by 60% -- yes, you read that right: 60%!

But old habits die hard, and despite a small bump the day Q1 earnings were announced, Kinder Morgan's shares have been steadily declining since. This is nothing new: Wall Street has been bearish on the company since management announced a -- probably necessary -- quarterly dividend cut from $0.51/share to $0.125/share in 2015. The price is still languishing at near-historic lows, which seems odd because the company's outlook is strong.

Kinder Morgan brought in more than $1.2 billion in cash flow in the first quarter, which is $804 million more than it needed to pay out its increased dividend. It even had enough left over to fund some expansion projects and buy back $250 million in stock. Natural gas transportation volumes were up 10%, and natural gas pipeline earnings were up 6%.

Kinder Morgan is still trading at a discount to its peers on an EV-to-EBITDA basis, which makes it a top prospect for investors who want to beat Wall Street to the punch.

Ride momentum in Chinese e-commerce

Keith Noonan (Bitauto Holdings): For a company that is already posting healthy profits and finding itself at the intersection of some promising growth trends, Bitauto Holdings isn't exactly the talk of Wall Street. The stock has lost roughly 40% of its value year to date and now trades at just 11 times this year's expected earnings and just 0.8 times expected sales -- despite posting strong top- and bottom-line growth.

The company saw revenue climb 54% year over year and gross profit increase 42% last quarter, but its share price slumped after management issued a target for sales growth between 37% and 41% in the current quarter. Indications of some slowdown in the company's growth trajectory appear to have caused some investors to lose interest, but I think that the business's prospects are underappreciated at current prices given its competitive position and favorable tailwinds.

Between 2009 and 2030, China is projected to add roughly 850 million people to its middle class, and per capita discretionary spending among this demographic group is on track to rise at a rapid clip as well. With e-commerce trends suggesting that auto sales and financing will continue to shift to digital channels, there's a favorable backdrop for Bitauto to build on its already strong positions in advertising, transactions, and lending.

Backed by a profitable business that still has avenues to growth, and with valuation metrics that leave room for substantial upside, Bitauto has the markings of an overlooked stock that could do big things.

The bottom line

We obviously can't guarantee that shares of these three companies will go on to beat the market from here. But given the impending fruits of Pandora's growth initiatives, the disconnect between Kinder Morgan's stock price and its strong results, and Bitauto's enviable position at the center of multiple growth trends, we like their chances of doing just that. And we think investors would be wise to consider opening or adding to their positions.

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John Bromels owns shares of Kinder Morgan. Keith Noonan has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan and Pandora Media. The Motley Fool has a disclosure policy.