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By Jason Stipp | 04-22-2011 06:00 AM

Moats in Action

Morningstar markets editor Jeremy Glaser traces how economic moats are offering a boost to Apple, McDonald's, GE, and more.

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five.

As any regular reader of Morningstar knows, we spend a lot of time talking about economic moats, and this week we saw a several signs of moats in action in the market. Here with me to offer the details is Morningstar markets editor, Jeremy Glaser.

Jeremy, thanks for joining me.

Jeremy Glaser: You're quite welcome, Jason.

Stipp: What do you have for the Friday Five this week?

Glaser: We're going to take a look at the moats of the iPhone, at the United States, General Electric, PIMCO, and McDonald's.

Stipp: Morningstar Apple analyst Joe Beaulieu said that they "crushed it" this quarter. Can you tell a little bit about what we know about the moat from the results we're seeing for Apple?

Glaser: Apple had a fantastic quarter. We're used to them having a fantastic quarter, but this really just was completely beyond, I think, anyone's even wildest expectations of how well the company was going to do.

One of the big drivers of that growth was the iPhone, along with the Mac business and the iPad, and other things that have been successful for them. But what's really striking is the iPhone was not only just successful for Apple, which we would expect, but also for Verizon and AT&T.

There was a lot of concern that when the iPhone launched on Verizon, AT&T which was going to implode, that everybody was going to leave, and they weren't going to be able to activate any new customers. But that just wasn't the case, as we saw earnings from those two companies as well this week.

Verizon had some nice subscriber growth, powered by having the iPhone available on their network for the first time, while AT&T only saw a modest loss of people leaving their network, and they still activated a really fair number of new iPhones--where people were choosing AT&T for the first time.

So I think that it shows how powerful the iPhone ecosystem is, that people across different networks want to buy it. They are out there buying it, and it shows how powerful of a franchise Apple has there.

Stipp: So, looking at moats at a higher level, you could say that the United States government, with its AAA credit rating, has a moat, but news out of the S&P this week might indicate that moat is eroding?

Glaser: Standard & Poor's certainly thinks that the United States' moat is starting to narrow a little bit. They think the likelihood of a default potentially could increase if political actors aren't able to tackle the deficit and aren't able to tackle the debt.

Now, I think the idea of a United States' default is still incredibly far-fetched. I think it's still a solid AAA credit. I think, we've seen political actors are willing to work together when they absolutely need to on things like the government shutdown and other important issues. And there's going to be a lot of talk and a lot of bluster on both sides. We're starting in a presidential campaign. We're going to hear a lot of it.

But I think that we're not going to risk the entire national balance sheet. We're not going to risk our credit rating just because we're unable to come to terms immediately. So, it's going to be long, it might not be a perfect solution, but I think the United States will be able to keep that AAA rating, and I think this is really just a warning shot and not one that investors need to be terribly worried about right now.

Stipp: Swinging back to earnings, we heard from GE on their first quarter on Thursday, they had a pretty good results for that first quarter period. Does this show that their moat is still really working for them?

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