As the price of a stock increases rational investors usually take a pause to assess whether the run is over. Apple Inc.’s (NASDAQ:AAPL) rise has defied this trend and as the stock continues its metor rise, the company is garnering the attention of both institutional and retail investors.

Apple is the most crowded trade on the planet right now. The company is the top owned stock by hedge funds, and has dozens of sell-side analysts watching every single announcement by the company and price move.

Retail investors cannot get enough of Apple. As usual, most people tend to equate a good company with a good stock, regardless of the price which they are paying for it. While this works sometimes, the vast majority of times, people pay for this type of attitude.

Apple does not seem so expensive. The stock is trading at approximately a price earnings ratio of 15. If you subtract the giant cash hoard (ignoring the fact that 66% is overseas to avoid taxes), the company’s price earnings multiple net of cash is closer to 11. Additionally, the new iPAD is already out of stock, Apple will have to keep production up at a rapid pace.

What is interesting to note is Morgan Stanley (MS) in particular, which announced this morning that the stock could go to $960 a share. Morgan Stanley sell-side analyst, Katy Huberty makes the case for this number using project using fair assumptions of earnings growth.

We call in two question the following: How is Morgan Stanley so bullish on Apple but not on the total stock market?

Our first question in more detail is as follows: Morgan Stanley projects that Apple now trading at $577 a share will reach $960. That is an increase of 66% in one year! Even small cap stocks usually do not increase that much in a year. With Apple’s market cap of $500 billion, it is far harder to increase in price that rapidly as so many big institutional investors already own the stock.

Additionally, Morgan Stanley believes that the S&P 500 companies (NYSE: SPY) will earn $103 in 2012. Their bull case assumes the S&P 500 to finish the year at 1450. The bullish case was mentioned earlier in the year, since then the index has risen approximately 12%. At the S&P 500’s current level of 1398, that would imply another slight increase from here.

Morgan Stanley reiterated its earnings forecast of $103, according to a recent report by Bloomberg. If so Morgan Stanley believes that the S&P 500 will rise by 4%, while Apple has a 66% increase? This seems very unlikely. Of course two different analysts did projections for the S&P 500 and for Apple, however, it seems strange for the firm to think that the largest stock in the country will outperform the market by such a large percentage. This is especially true since the company already makes up 4% of the index, and that percentage would only increase as

We have other objections on the analysis such as margin increases, as labor costs soar in China. Additionally the recent expose of Foxconn might put pressure on Apple to raise wages, which will result in lower margins. However we will save those for another time.