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Apple is not overvalued ... yet

August 21, 2012: 12:34 PM ET

Apple is the most valuable tech stock by far. But is it towering too high above some of its competitors?

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

Asking the following question may be considered blasphemous to the throngs of Mac geeks and iFaithful out there. But here goes: Are shares of Apple (AAPL) finally getting TOO expensive?

Apple hit another all-time high Tuesday, coming close to $675 per share before pulling back a bit. The company is now worth approximately $620 billion. That's nearly two-and-a-half times the market value of Microsoft (MSFT) and almost three times what Google (GOOG) is worth. Those two companies are the only tech giants with a market capitalization even remotely close to Apple.

So it's fair to wonder if Apple's stock, which is up 63% year-to-date, has risen too far too fast.

The good news is that Apple shares are still reasonably valued. It doesn't have a triple-digit price-to-earnings ratio like Cisco (CSCO) did in the late 1990s -- a time when many on Wall Street and Silicon Valley were predicting that Cisco would be the first tech to hit a market value of $1 trillion. Apple's stock is trading at 15 times fiscal 2012 earnings estimates, a fair price for a company whose earnings are expected to increase by 22% annually, on average, over the next few years.

But Apple is no longer the slam-dunk bargain it used to be. The earnings multiple is not just keeping pace with earnings growth, it is expanding. When I wrote about Apple nearing an all-time high just a few weeks ago, shares were trading at 14 times earnings estimates. And when Apple's share price topped the $500 mark for the first time back in February, I noted that the stock was trading for less than 12 times fiscal 2012 forecasts.

With the end of Apple's fiscal year rapidly approaching, it will soon be time to look at fiscal 2013 predictions as the best gauge for Apple's value. On that front, Apple is not dirt cheap. The stock trades at about 13 times fiscal 2013 estimates. What's more, analysts have been cutting their earnings targets for next year, following Apple's warning that its current quarterly earnings will be below estimates.

Now, don't get me wrong: Investors shouldn't be nervous just yet. The company has $117 billion in cash. It's finally using some of that mountain of moolah to pay shareholders a healthy dividend. Doing so makes Apple a stock that both growth-hungry momentum investors and yield-starved income investors can comfortably own.

Related: Apple and Cisco show investors the money

And unless the upcoming iPhone 5 (or will it merely be the "new iPhone"?) looks like Apple's ill-fated Newton from the early 1990s, it seems unlikely that consumers are going to suddenly fall out of love. Competitors like Research and Motion (RIMM) and Nokia (NOK) may be on their last legs, which can only help Apple in the long run.

But investors would be foolish to ignore risks. Regardless of what happens with the Apple-Samsung patent infringement trial, Samsung and others that have joined the Google Android camp have emerged as tough competitors. Microsoft, which will soon start selling its Surface Tablet and Windows 8 operating system, seems to have rediscovered its innovative roots. Intel (INTC) is aggressively pushing ultrabooks as an alternative to tablets.

Apple is in a business that requires constant product refreshes. There is no time to rest on one's laurels. As soon as the iPhone 5 is out, people will start wondering when the next iPad will be released. Expect even more questions about when Apple will finally reveal the long-rumored Apple TV product, which may or may not be an actual television.

And what happens if another company creates a product that makes tablets look obsolete? Just ask Dell (DELL) and HP (HPQ) how sticking with PCs for too long has turned out.

Related: Now is the best time to trade in your iPhone

"When Apple's stock finally does begin to come down, it will be because of competitive reasons," says David Darst, chief investment strategist with Morgan Stanley Smith Barney. "Valuations are not stretched."

True. Shares of Apple may not be overvalued at $670. As long as the company's sales and earnings continue to shine, it could very well surpass $700, $800, and continue its march toward a quadruple-digit stock price and $1 trillion market valuation.

But the stock is no longer cheap, and investors can be unforgiving. The one major negative that comes with being a stock that just about everybody loves and owns is that everybody might be quick to head for the exits if Apple ever stumbles -- or if investors suddenly decide that it's time to dump tech and move elsewhere.

So if you want to own Apple, don't go overboard. Any S&P 500 or Nasdaq-100 index fund will give you substantial exposure to the stock.

In case you forgot, Cisco and Microsoft -- the company that used to claim the title as the most valuable company ever -- are nowhere close to where they were trading more than a dozen years ago. Apple isn't necessarily destined for the same fate, but there's a saying about history repeating itself for a reason.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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