Falling interest rates reduce borrowing costs, increase corporate investment and consumer spending, and generally increase valuation multiples across the board. But for high growth stocks with most of their cash flows likely to be seen in out years, the multiple expansion that can be seen in a low interest rate environment can be much more pronounced. Thus, with bond yields continuing to drop, there are a number of investors who are looking at the recent large-to-small-cap rotation and thinking now may be the time to consider taking a contrarian view of these trends. 

I think that’s not necessarily a bad idea. Indeed, if we do enter the start of what could be a faster-than-expected rate cutting cycle, with expectations of a 25-basis-point rate cut on September 17th picking up, it’s likely valuations could once again go back into expansion mode.

For those looking at top U.S. growth stocks with more room for upside in such an environment, let’s dive into three top stocks that should make the list.

Key Points About This Article:

• A rotation has been building, with capital largely moving out of large-cap growth stocks and into pockets of the market with better valuations.
• But if interest rates do come down as the market is pricing in, that could be a boon for the following three growth stocks poised for multiple expansion.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Apple (AAPL)

Even in the tech-stock boom, many investors stick to traditional strategies and the bluest of blue chip stocks. Accordingly, investing in profitable companies like Apple (NASDAQ:AAPL) is a time-tested option for many growth investors out there. This is a Warren Buffett pick, which says something (given the effort Mr. Buffett has spent over the years in avoiding the tech sector), and suggests this company may have a higher intrinsic value than many think.

Now, Buffett has slashed his stake in Apple in more than half, and could continue selling shares of the iPhone maker moving forward. At current interest rates, and Apple’s 34-times trailing earnings multiple, it’s not a cheap stock here.

But there are analysts who believe this stock could have more room to run, particularly in a lower rate environment. BofA Securities analyst Wamsi Mohan increased Apple’s target to $256, reflecting a 10% potential gain from its recent price of $232.98. Despite positive outlooks from analysts, the lower-than-expected June CPI led investors to shift from high-performing tech stocks like Apple to those that might benefit more immediately from rate cuts.

Mohan’s optimism stems from his belief in a multiyear iPhone upgrade cycle fueled by generative AI features exclusive to the iPhone 15 Pro and Pro Max. He noted that many users still have older iPhone models, such as the iPhone 11 and 12, which will not have access these new features. Wedbush analyst Daniel Ives also supports this view, predicting a strong upgrade cycle for Apple’s iPhone 16 driven by growing global demand and positive signals from the Asia supply chain.

Ford Motor (F)

Ford Motor (NYSE:F) has seen its stock price rise 5.6% this year, lagging behind General Motors’ (NYSE:GM) 30% gain and the S&P 500’s 16% increase. Both automakers are growing EV sales and are projected to generate substantial profits, with Ford at $22 billion and GM at $26 billion for 2024-2025. The key difference lies in their capital return strategies: GM has implemented $16 billion in stock buybacks, while Ford has focused on dividends, including a special 18-cent dividend in March.

Ford Motor’s stock is currently considered undervalued based on its price-to-earnings ratio of 10.4-times, which is below the industry average of 13.3-times. This suggests the stock is cheaper compared to its peers. Ford’s high beta indicates significant price volatility, offering potential opportunities for buying if the stock price fluctuates further.

I think Ford could be a higher-upside growth stock pick, particularly if the company can accelerate production of its EV vehicles at a lower price point than its peers. Of course, plenty of uncertainty remains on this front. But from an earnings perspective, this is a stock with strong potential to outperform, and one I think the market is overlooking right now.

Realty Income (O)

Realty Income (NYSE:O) is a top-performing, long-held stock with consistent market-beating returns and lower volatility than the S&P 500. This real estate investment trust, owning around 15,500 properties in the U.S. and Europe, has steadily increased income and dividends over time. The company’s success stems from its recession-resistant tenants and long-term leases with built-in rent hikes, while tenants cover taxes and maintenance. 

Realty Income’s dividend yield stands at 5.2%, notably higher than its 10-year average of 4.5%. Although the company’s yield has been higher in the past, it remains appealing for income-seeking investors. The stock has seen strong recent gains and the company has a long history of annual dividend increases. 

If interest rate declines factor into a real estate market that heats up once again, Realty Income could be a key beneficiary of this trend. The company’s portfolio of more than 15,500 properties is among the most diversified in the space, with some of the best upside if valuations start to increase across the board.

This pick could be the highest risk option on this list. But for those seeking consistent and market-beating growth over the long-term, this is a company I think can deliver on this front (with a nice dividend yield to boot). 

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