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Apple Bears Become Endangered Species

A Scotia Capital analyst upgraded Apple to ‘outperform’ this morning, bringing the total number of analysts recommending the stock to 39 following its amazing quarterly results. There are now just two analysts in the world that rate the stock a ‘sell’ and only two left that recommend ‘holding’ it, according to Thomson Reuters data.

“We have raised our recommendation based on the potential for expanded iPhone distribution, the expected success of the iPad, and a stock that is trading below its historical average P/E ratio,” wrote the analyst, Gus Papageorgiou, who had a ‘sector perform’ rating on the shares since the end of March 2009. The stock is up more than 140 percent since then.

Today, Apple shares are on track for their second-biggest gain in dollar terms in the company’s history after first-quarter revenue totaled $13.5 billion, a whopping $1.5 billion more than consensus estimates.

From the iPhone to even the iPod and their retail stores, the company’s numbers impressed even the biggest bears, who feared the company wouldn’t grow fast enough to justify its monster share-price gains. The statistic that really turned the Scotia Capital analyst was iPhone sales for last quarter. The company sold 8.75 million units, topping the 8.7 million sold during the 4th quarter, seasonally the company’s strongest product period because of the holidays.

No one can argue that Apple’s products aren’t popular, but there was a bear case building that maybe its valuation was a little too rich. In fact, the shares fell during the three days leading up to this report. But after the blockbuster quarter, the valuation argument is getting harder to make. Apple is now trading at a multiple of 18 times Scotia Capital’s 2010 earnings estimate, below its historical P/E of 19.

A contrarian investment thesis on Wall Street reads that if there are too many analysts recommending a stock, then all the good news must be priced into the shares. It raises the question: who’s left to buy the stock in the future if everyone already owns it? But Steve Jobs’ magic touch is amazing even the investors that use that thesis.

“If there’s ever been a company this size that’s been able to grow revenues this fast, I can’t think of it,” said Gary Kaminsky, a former managing director at Neuberger Berman, who managed as much as $13 billion using a value-based approach.

Goldman Sachs analysts David Bailey and Craig Hettenbach are sticking to their guns however. They defended their “neutral” rating after the results last night.

“Extremely strong March-quarter results, multiple upcoming product cycles, and higher estimates justify Apple’s sector-high valuation,” wrote the analysts in a note to clients. “That said, we see the shares as fairly valued using the after-hours stock price and our new estimates.”

But the Goldman Sachs analysts have been playing catch-up on Apple. They raised their 12-month price target to $270 Tuesday night (about 5 percent above today’s levels), bringing the total number of times the stock’s appreciation has forced them to raise their forecast to 11 in the last one year alone.

with reporting by Jennifer Dwork

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Trader disclosure: On Apr 21, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Is Short June 2010 Crude Oil; Terranova Is Long December 2011 Crude Oil; Terranova Is Short Australian Dollar; Terranova Is Short Japanese Yen; Terranova Is Short Gold; Terranova Is Short (PCLN); Terranova Is Short (BRE); Terranova Is Long Japanese Yen; Terranova Owns (C), (XCO), (SWN), (TER), (HES), (AXP), (XCL); Terranova Owns (C) May Calls; Scaramucci Owns (GS), Skybridge Owns (GS); Najarian Owns (C) Calls;Najarian Owns (CLF) Call Spread; Najarian Owns (GLW) Call Spread; Najarian Owns (MRVL); Najarian Owns (UNP); Najarian Owns (YHOO) Call Spread; Kelly Owns (CXW) Calls; Kelly Owns (FXE) Puts; Scaramucci Owns (CIT), Skybridge Owns (CIT)

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