The Best Overlooked Stock to Buy in E-Commerce

With the recent Alibaba Group Holding Ltd. (NYSE: BABA) IPO, e-commerce stocks draw a lot of investor attention these days.
Some say Alibaba is the best stock to buy, pointing to its dominant position in a massive Chinese consumer market.

Others think Amazon.com Inc. (Nasdaq: AMZN) is the best e-commerce stock to buy, citing its dominant position in the U.S. market as well as a thriving cloud business.

One thing everyone agrees on is that the e-commerce market is on the verge of explosive growth.

Right now, e-commerce is only about 6.5% of all U.S. retail sales. But growth has been steady.

stock to buyForrester Research expects U.S. online sales to grow 57.4% over five years, from $263 billion in 2013 to $414 billion in 2018.

Consumers are also getting increasingly comfortable shopping on their smartphones and tablets. Mobile e-commerce shot up 48% in the second quarter, three times the rate of desktop-based e-commerce.

To be sure, the big names of e-commerce, Amazon and Alibaba, will benefit from this growth.

But both are obvious choices. By now, most investors looking for e-commerce stocks to buy already own BABA, AMZN, or both.

And where AMZN is concerned, many investors remain queasy about buying a stock that consistently posts earnings losses and has a stratospheric price-to-earnings ratio of over 800. The Standard & Poor's 500 average P/E is just under 19.

Investors may know of a few other e-commerce stocks to buy, such as eBay, Inc. (Nasdaq: EBAY).

But one of the best alternatives to the big names of Alibaba and Amazon is completely under the radar.

It's a household name that almost no one associates with e-commerce. The company launched in 1982 in Florida, and is worth $3.46 billion.

Here's why it's the best overlooked e-commerce stock to buy...

HSN Inc. (Nasdaq: HSNI): An E-Commerce Stock to Buy That Everyone Missed

At this point, many of you may be scratching your heads. The Home Shopping Network? How could a cable shopping channel be an e-commerce stock to buy?

As it turns out, HSNI has been quietly expanding its online sales. In the June quarter, HSNI reported that e-commerce accounted for 46.6% of total sales.

Today HSNI is what's called a multi-channel retailer. It sells merchandise through its HSN.com website, its TV exposure to 95 million U.S. households, and its mobile apps that run on smartphones and tablets.

While HSNI isn't anywhere near the size of e-commerce giants Amazon and Alibaba, it does have several catalysts that make it a compelling stock to buy.

For one thing, the multi-channel approach has been key in getting customers to spend more. HSNI's sales data shows that customers who buy from multiple channels spend over 50% more than those who buy from a single channel.

And HSNI is making sure it exploits changes in the retail landscape rather than wait for those changes to undermine the business.

"It's about being curious, it's about being connected, it's about being collaborative, but more important is how do you use technology to create meaning and engagement," HSNI Chief Executive Officer Mindy Grossman said on Bloomberg TV last month.

One unusual engagement feature HSNI added to its website is an arcade. There visitors can play simple games to earn tickets they can use to enter sweepstakes. As odd as it seems, the arcade has proven popular with customers.

The company also partners with other companies like Pinterest and The Walt Disney Co. (NYSE: DIS) to keep the HSN.com experience fresh so customers will keep coming back.

"You have to become the destination," Grossman said. "If you're going to get any share of wallet, you have to get the customer to want to come to you."

The strategy seems to be working well. HSNI's sales per share are the highest in the catalog retail industry at $64.04. Liberty Interactive Corp. (NYSE: QVCA, QVCB) is second in this sector with sales per share of $22.73.

That brings us to another great reason HSNI is a stock to buy now - it's likely to be acquired by Liberty Interactive.

The QVC-HSNI Connection

You see, Liberty owns QVC, a rival to the Home Shopping Network. And just this month it reorganized its business to split QVC into its own division. HSNI and QVC have very similar businesses and would make a great fit. For example, QVC derives 43% of its revenue from e-commerce.

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QVC already owns 38% of HSNI, so it would only need to buy out the remaining 62%. And Liberty Ventures is expected to have $2.7 billion in cash by the end of the year, so it can easily afford to make the deal happen.

While e-commerce growth at HSNI is already baked in, an acquisition by QVC would deliver immediate gains.

Finally, there's one last thing that makes HSNI a stock to buy: it pays a 1.53% dividend. And with a payout ratio of just 32.2%, the company has a lot of room for future payout increases.

HSNI stock was $65.50 in mid-day trading Friday.

Should I be in the stock market right now? We've just gone through the worst market volatility in nearly 20 years. And everywhere you look, "experts" are talking about the possibility of a full-blown market crash. You can't blame investors for wanting to hit the eject button. But it's still a terrible idea. Here's why...

Follow me on Twitter @DavidGZeiler.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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