Apple falls after downgrade

Apple (Nasdaq: AAPL) shares sank more than 6 percent Tuesday as Salomon Smith Barney downgraded the stock from "buy" to "outperform."

Shares were down 5 3/16 to 90 9/16 after gaining more than 8 points yesterday. Shares surged Monday following the announcement that a San Jose judge issued a preliminary injunction barring Future Power and Daewoo from selling iMac-like PCs in the U.S. Apple, which competes with Microsoft (Nasdaq: MSFT) in operating systems, may have also gotten a rise from the antitrust rulling, which boosted Red Hat (Nasdaq: RHAT) and other players.

Apple shares have also been on a tear following a bullish fiscal first quarter outlook.

"While we continue to believe that Apple is poised for a strong December quarter based on the simultaneous roll-out of three new product families, we believe the stock has discounted a good portion of this strength. We also believe that Apple shares are benefiting near-term from Y2K uncertainty in the corporate PC market," wrote analyst Richard Gardner in a report detailing the downgrade.

The downgrade was based on valuation, according to the report that said shares are now trading at 30 times Salomon's estimated fiscal year earnings, or 35 times its fully taxed earnings.

The report added that its new twelve month price target of $115 suggests 20 percent upside for the stock.