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By Jeremy Glaser and Karen Wallace | 07-23-2015 02:00 PM

Friday Five: Companies in Transition at Midyear

The market pondered mixed earnings reports from Apple, Microsoft, IBM, and Amex this week, while GM had a better-than-expected quarter.

Karen Wallace: Hi, I'm Karen Wallace for Morningstar filling in for Jason Stipp. Welcome to the Friday Five--Morningstar's take on five stories in the market this week. Joining me is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: You're welcome, Karen.

Wallace: There were three big tech companies reporting earnings this week--and the reports were slightly disappointing. The first was Apple (AAPL). Was the big story there the Apple Watch?

Glaser: Yeah, the market certainly was disappointed in Apple's quarter, and I think part of that was the Watch. Either the disclosure or maybe lack of disclosure about Watch sales, I think, show that this is not a product that's off to the kind of rollicking start that maybe the iPad had. Brian Colello, our Apple analyst, said that this isn't much of a surprise, given the supply constraints that the Apple Watch had, given the fact that it's a little bit more complicated of a product than, say, the iPad. It doesn't have as robust of an app store yet; people are probably waiting for newer versions, more software updates before they make the plunge. We should expect this to be a product that is going to build slowly over time. It's not going to be a huge success or a huge profit driver right away. He says it's way too early to say that this is a flop of a product and that it's not going to be a big impact. It's really something we are going to have to wait and see about.

What we should be focused on instead is the iPhone business. This really is the big driver. If you look at the robust demand for the iPhone, particularly in China, which had really good sales growth again in the quarter, I think you can see some very positive signs there. You see signs that Chinese consumers are choosing the higher-end iPhone--again, another thing that's good for Apple. So, we stuck with our fair value estimate after this quarter. Shares are trading below that right now. It looks like a margin of safety is opening up, so Apple, as always, maybe is an interesting company to watch and maybe an interesting one to put on the radar screen as the stock price comes down somewhat.

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