4 E-Commerce Stocks to Buy, and 1 to Avoid, for 2015

By Markets Fool.com

Online retailers, known as e-commerce outlets or more affectionately as e-tailers, threaten to upend the old world order with their low overhead costs and user-friendly purchasing processes. But not every e-commerce company is a slam-dunk winner. Here are four of the most attractive e-tailer stocks on the market as we head into 2015, followed by one online retail stock to avoid at all costs. I will be talking about Amazon.com , Priceline , Mercadolibre , Overstock.com , and eBay . See if you can figure out which one of these e-commerce stocks doesn't belong with the four winners.

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The big Kahuna
Let's start right at the top. Amazon.com is not just the biggest business on my short list, but also a tireless e-commerce innovator and trailblazer.

Amazon's $143 billion market cap is larger than the caps of the four other stocks discussed here, combined. Add up the four smaller revenue streams, and they stop at $28 billion per year. Amazon's $85 billion is triple that sum.

In other words, no one else comes close to Amazon's huge economies of scale. The company has built an extremely efficient purchasing platform, married it to an equally impressive distribution network, and continues to tinker with the mechanics of both.

For example, the company is delivering some packages across Manhattan by bike messengers this holiday season, and hopes to use automated drones for quick deliveries in far-reaching locations. Amazon's laurels must be uncomfortable, because management refuses to rest on them.

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Critics will say that Amazon's profit margins are thin and the stock is too expensive. But then, Amazon shareholders aren't paying for today's modest net income -- it's all about free cash flows, running deep into the future.

The naysayers have been winning the battle in 2014, and Amazon shares trade 21% lower year-to-date. In my view, that's nothing but a warm and inviting buy-in window into the best e-commerce stock on the market.

The times, they are a-changin'
Next up is eBay, the online auction house that's knee-deep in a major transformation. Buy eBay today, and you'll end up owning shares of the auction house and its PayPal payments subsidiary when the two split apart in 2015. The savings on trade commissions alone are breathtaking. I kid, but it's true that eBay is parting ways with PayPal -- and that you should consider owning them both.

The stand-alone PayPal entity is a fast-growing titan in its chosen field. As e-commerce matures and expands over the years, e-savvy payment services like PayPal will only become more important. And I'm saying that about an operation that processed a breathtaking $203 billion worth of consumer transactions in 2013. PayPal will be a stock to own for the long haul.

Meanwhile, the slimmed-down and refocused eBay portion is starting to look like an attractive buyout target. The PayPal portion currently boosts the price tag of the total eBay package into the realm of the ludicrous. But sans PayPal, eBay's market value drops from nearly $70 billion to somewhere in the teens. That's a much easier target for cash-rich tech or retail giants who want to bolster their e-commerce offerings.

South of the border
Then there's MercadoLibre -- the eBay of Latin America. This one's a stock you may want to buy in 2015, and not necessarily right now.

MercadoLibre's shares are notoriously volatile, and not always due to any fault of the company's own. In 2014, share prices fell more than 20% thanks to unstable economies in places like Argentina and Venezuela. Then they roared back to life, gaining 53% over the last six months. MercadoLibre's fantastic business prowess outweighed currency concerns and crushed analyst estimates in two consecutive quarters.

MELI Chart

MELI data by YCharts

Will this happen again in 2015? Nobody knows, of course, but chances are good that another round of South American instability could set MercadoLibre investors up for a fresh bounce. This is a high-quality company, and most of the risk involved in owning it comes from the economic environment in its core markets. That's a recipe for lasting success, punctuated by a series of sharp stock corrections as nervous investors jump out.

So MercadoLibre shares might not be cheap right now, but opportunistic investors should keep some powder dry in case another buying opportunity arises in 2015.

Name your price!
Priceline investors have been asking for higher share prices in the long run, taking the stock 400% higher in the last five years and more than 4,600% higher over the last decade. But they started asking for discounts in 2014, and this year has done nothing to increase the wealth of Priceline's owners.

The online travel reservations giant has seen its stock price fall 4% in a year where the S&P 500 index rose by 10%. That's a sharp break from the extreme gains of yesteryear. The stock nearly doubled in 2013, for example. So what's wrong with Priceline right now?

Frankly, not much. Priceline's trailing sales have grown by 20% over the last four quarters, lifting free cash flows 17% higher and boosting earnings by 24%. But the stock has still wandered in the opposite direction.

And the loser is ...
Yes, you saw this one coming. Overstock.com is a poster child for what a great e-commerce business should be.

The concept is clever enough -- grab unsold inventory from other retailers on the cheap, then turn around to scrape out a profit from fire-sale discounts to the general public. It's Big Lots with all the benefits of running a lean e-commerce business, and the business model should work great.

But it doesn't. Overstock marries those low prices to inefficient distribution systems and a terrible customer service record. Just ask Circuit City how well it pays to skimp on customer service.

Overstock is chasing sales at any price, but cash flows remain wafer-thin. The innovative spirit and fat cash flows that make up for Amazon's bottom-line shortcomings simply don't exist here.

Overstock stock jumped sky-high in July and again in October, thanks to a pair of strong earnings reports. Even so, Overstock investors have not recovered from the pain of the January and April reports. Share prices have fallen 18% in 2014, all things considered.

Amazon seems destined to bounce back from a year of weak stock returns. For Overstock, it's more like the continuation of a long, sad trend. To wit:

AMZN Chart

AMZN data by YCharts

The article 4 E-Commerce Stocks to Buy, and 1 to Avoid, for 2015 originally appeared on Fool.com.

Anders Bylund has the following options: short January 2016 $320 puts on Amazon.com and long January 2016 $320 calls on Amazon.com. The Motley Fool recommends Amazon.com, eBay, MercadoLibre, and Priceline Group. The Motley Fool owns shares of Amazon.com, eBay, MercadoLibre, and Priceline Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.