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Stock Of The Week: The Top 10 Signs Apple (AAPL) Is Overvalued?

|Includes: Apple Inc. (AAPL)

On Thursday (and as correctly predicated by Next Candle), Apple (NASDAQ:AAPL) briefly surpassed the $600 mark for the first time but some analysts are beginning to question Wall Street's love for the stock while others, mainly labor activists spoiling for a fight, increasingly have the company in their crosshairs over its alleged labor practices. Hence, here are the top 10 signs that Apple (AAPL) may already be overvalued:

  1. Apple (AAPL) has unsustainable growth rates. In today's Wall Street Journal, Andy Kessler haspointed out that both iPhones and iPads are driving Apple's 40% to 50% annual revenue growth rates and the stock is still cheap - if the company can keep up these extraordinarily high growth rates. However, that means another $50 to $60 billion in additional 2012 sales on top of the $125 billion in sales for 2011. Andy does point out that Apple (AAPL) has only begun to penetrate China, a potential goldmine of growth but Android is also winning over consumers there because it's free.
  2. Apple (AAPL) wants to grab the TV market with its iTV but it's also a very low margin business - as Sony has (painfully) discovered.
  3. Patent lawsuits are booming as everyone is busy suing everyone else right now and one loss by Apple (AAPL) could knock $50 to $100 off its stock price.
  4. Wages are rising in China and throughout Asia while any rise in the Chinese currency will hit Apple's margins.
  5. More real or fictional labor controversies in China. In fact, a public radio show has recently been forced to retract an entire episode about labor conditions in factories that make Apple (AAPL) products because its creator, Mike Daisey had fabricated large portions of it. This revelation came after the New York Times published its own expose (In China, Human Costs Are Built Into an iPad) about the factories that drew widespread attention.
  6. Stocks like Apple (AAPL) tend to go parabolic at the end of the move and not at the middle as Peter Boockvar of Miller Tabak has pointed out in a recent CNBC article about the company.
  7. A number of firms have already raised their price targets on Apple - often a signal that a top is near (think 1999 before the Internet bubble burst). In fact, the recent CNBC article has pointed out that Piper Jaffray has raised its Apple (AAPL) target to above $700; Bernstein has given it a target of $710 (up from $600); Morgan Stanley has put it on its best idea list with a price target of $720 (and $960 for next year); Jefferies has put a price target of $699 on it (plus raised its earnings estimates); and UBS has raised its price target to $675 (and raised estimates for fiscal year 2013).
  8. Rising gasoline prices, creeping yields, higher inflation and a possible repeat of "That '70s Show" hitting consumers and investors alike in their pocket books.
  9. The booming tablet PC business offers plenty of alternative products - at least some of which are arguably better than what Appel (AAPL) now offers.
  10. Some whole new and unforeseen technology coming along and completely upending what we know today.

Nevertheless, Andy concluded that as a former hedge-fund manager, you never want to get in front of a freight train when mutual funds and index funds are busy loading up on it - until the fundamentals shift and then you will want to hit the exits as fast as possible (Think General Motors, Kodak or Xerox). Likewise, the CNBC article concluded by saying that Apple might be the most valuable company in the world today BUT it's still smaller than Microsoft (NASDAQ:MSFT) when it peaked at $604 billion in 1999. Plenty of food for thought