1 Really Overvalued Stock, 2 Undervalued Ones

David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With the increasing use of smartphones and tablets, it is natural that more purchasing will take place online. However, this trend should not be overstated. While some firms will fare well in this new environment, some are over-invested in it and detached from current purchasing modes.

eBay (NASDAQ: EBAY) Is Undervalued

You may know eBay as a "junk eCommerce" store; however, in my view it's an undervalued treasure. In particular, the firm is well positioned in mobile through PayPal, an online payment processor. With more and more businesses accepting PayPal (and there are even more out there, making this a huge untapped market) the growth going forward is significant. To get a sense of what this "growth curve" has already produced, consider that mobile use within eBay's  Marketplace segment has gone from 7% of last year's volume to north of 14%, according to research by Wedbush.

Retailers will likely match lower rates to PayPal as a way to encourage greater consumer expenditures. Canaccord Genuity put it best: "As mobile, local, and social commerce accelerate the blending of offline and online commerce, more opportunities to service merchants are emerging. eBay is early in exploiting these." With the Marketplace's business recovering (the core buying and selling trading place at the "junk eCommerce store" mentioned above), the company will have even greater leverage to push PayPal onto users. The acquisition of Hunch, which customizes recommendations based on user preferences, and Zong, which enables mobile payment, will allow for these two segments to better interface as well. In the longer term, I believe the Marketplaces will track better given greater consumer uncertainty following the financial collapse. It should be stressed that eBay's stock prices has been highly correlated with the Marketplace's business.

According to Cannacord, there were 103 million active PayPal users, and more than 60% of the top domestic retailers used the payment solution. Around late 2014, PayPal will make up a majority of eBay's business, and thus will most likely drive the investment story thereafter. In a world where stock prices are determined by what happens tomorrow, that means it's ideal to buy shares today.

No Apples (NASDAQ: AAPL) In The Amazon (NASDAQ: AMZN)

Whereas eBay is undervalued and no one talks about it, Amazon is overvalued and everyone talks about it. Indeed, I believe that Amazon is the most overvalued stock on the market. According to present value analysis, even a 50% annual EPS growth rate at a 15x multiple would take the stock price to $131.12. At a 10% discount rate, that equates to $81.42 in present terms. Ironically, even ridiculously high growth inputs suggest the company is absurdly overvalued.

While the eCommerce store has done a major job in transitioning businesses from retail stores and onto the computer screen, the long-term trend is disappointingly mundane. In addition, there are constant proposals to levy an online sales tax that has yet to be meaningfully factored into the stock price. Competition from Google and Apple have been all been ignored, but they shouldn't be; these companies actually have diversified economic moats beyond the Internet that can be leveraged for eCommerce business. Apple is particularly well positioned.

Suffice to say, Apple has inroads, if not an early-mover advantage, in mobile and tablets. Amazon has Kindle Fire, which it sells at a loss and attracts primarily a book-reading market - not a genuine marketplace for diversified goods. By contrast, Apple has been able to attract a variety of consumers that are interested in diversity (app store, anyone?). Accordingly, I recommend buying Apple over Amazon.

TakeoverAnalyst has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Amazon.com. Motley Fool newsletter services recommend Apple, Amazon.com, and eBay. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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