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Does Wall Street Love Apple Stock Too Much?

Friday, 16 Mar 2012 | 11:13 AM ET

As consumers line up for its brand new iPad, some strategists worry that too many Wall Street houses are lining up behind Apple, sending its stock price up too far, too fast.

Tooga | Stone | Getty Images

They also worry that Apple’s recent outsized gains, which helped take the broader market higher, could deflate in a way that would also become a problem for the overall market.

Apple crossed the $600 mark for the first time Thursday, on the eve of its Friday morning iPad launch, but it gave back some gains to close lower on the day. The stock rose on Friday but remained below $600.

Apple has risen 45 percent so far this year, with its stock thundering across the $500 mark just a month ago. Apple has contributed about 34 percent of the Nasdaq 100’s gains this year.

“It’s logical for anybody to look at any stock that has gone parabolic and be concerned about its sustainability,” said Lazard Capital Market’s Art Hogan. But Hogan said Apple has solid product offerings with more to come, and its forward price earnings ratio of about 13 is still reasonable.

“If we think Apple is maturing as an industry, and they’re no longer going to drive demand and something new is going to take over then we should be concerned,” said Hogan. But that’s not the case, he said.

Deutsche Bank analyst Chris Whitmore Thursday took Apple off the firm’s high conviction list because of the strong performance of its shares, but the analyst said there is no change in “our medium/long term bullish view.”

The action was cited as a reason why the stock sold off.

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“The parabolic move typically happens at the end of the move, not at the middle,” said Peter Boockvar of Miller Tabak. “Because of its size, it’s going to have consequences for the rest of the market. It didn’t today. The stock was down but the rest of the market held in.

I don’t think people should ignore that Apple is trading in a parabolic way. It could end in flames. I’m not bearish on Apple. But whenever you see a stock go up like that, I don’t care how great it is,” Boockvar said.

As Apple touched $600, the S&P 500 Thursday reached the 1,400 level for the first time since June, 2008. The index remained above 1400 on Friday. It is up more than 25 percent since October, and analysts have been expecting the market to pull back.

Boockvar said he’s getting more cautious on the market in general, and the activity around Apple just adds to his concerns.

Rising gasoline prices is another reason, and so is the recent creep in yields.

“This market has depended on cheap money. There’s a problem if rates move much higher from here,” he said. The 10-year was yielding 2.28 percent Thursday evening.

Boockvar pointed out that just this week a flurry of firms raised price targets on Apple, behavior that is often considered a sign of a coming top. Piper Jaffray raised its target above $700, and Bernstein gave Apple a target of $710 from $600. Morgan Stanley put Apple on its best idea list with a target of $720, and $960 next year.

Jefferies put a target of $699 on the stock, and raised its earnings estimates, noting the iPhone 5 could launch in the third quarter and iTV in the fourth quarter. It also said concerns about the new iPad are overdone. Cannacord Genuity raised its target to $710 and said its checks indicate record preorders for the new iPad.

UBS, meanwhile, raised its price target to $675, citing an anticipated October launch for iPhone 5. It also raised estimates for fiscal year 2013.

“We’re seeing these sell side analysts raising price targets every day. This is the end of a move. I’m having déjà vu of 1999,” Boockvar said.

But Apple has a lot of fans, and it seems to hit a home run with each new product. It also has nearly $100 billion in cash, and investors are holding out hope for a dividend.

ISI Group updated its view on Apple Thursday, because of the latest $100 point run. It concluded its review by raising its target to $650 and noting that “while iPhone’s penetration opportunity has passed the early innings, we believe it’s premature to fear “law-of-large numbers” issues. ISI raised its iPhone unit estimate for 2012 to 125 million, up 34 percent year over year and above its earlier 120 million estimate.

Apple is the biggest market cap stock in the world. At $600 a share, its market cap is $559 billion, now equal to 1.5 percent of global stock market value, according to Howard Silverblatt, index analyst with Standard and Poor’s. But it is still smaller in market cap than Microsoft, when it peaked at a record $604 billion in 1999.

It has a 4.3 percent weighting in the S&P 500 , but that is below the historic high of IBM in 1982, when it had a 6.4 percent weighting.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • Sharon Epperson is CNBC's senior commodities and personal finance correspondent.

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.

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