Many of my friends use an apostrophe-S after a proper noun to conjoin the word with the word is. For example:

"Bob's angry today."

This does not make sense to me. I know that an apostrophe can be used to either show possession or to replace letters in a conjoined word such as "can't"; however, when you are referring to a proper noun, would that not be incorrect, since it would be showing possession instead?

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You are quite correct that the apostrophe-S combination can be used for either possession or to replace letters in a contraction. There is no restriction that it must mean possession when it is used in conjunction with a proper name, though.

When used with a proper noun, if it is standing alone, then the apostrophe-S is ambiguous; "Bob's" could mean "belonging to Bob" or "Bob is". You have to rely on the context to determine what is meant:

Bob's angry today.
"Bob's" = "Bob is"

Bob's anger gets him in trouble.
"Bob's" = "belonging to Bob".

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