(MONEY Magazine) – E-TAILERS ON SALE: SHOULD YOU BUY?

Bellwether Amazon.com's shares are down more than 40% from their high while EToys' stock has dropped to $16, $4 below its IPO price. What gives? With holiday hype behind us, the flavor of the month is business-to-business commerce, not books online. And while e-tailers continue to increase revenue, expenses are starting to look out of control. To top it off, two former high fliers, Beyond.com and Value America, lost their CEOs and are laying off employees, a step Amazon is taking, too. "Some of these companies made a lot of promises, and they just haven't worked," says Prudential Securities analyst Mark Rowen. "Investors are going to start separating business models that work from ones that don't."

Rowen likes high-margin sectors, such as travel and auctions, that don't have the physical headaches of production and distribution. Ryan Alexander, an analyst at Wit Capital, agrees: "Certain companies are extremely well positioned to leverage the intrinsic characteristics of the Internet." Among his favorites is Priceline.com, down 63% from its high of $162. Rowen likes eBay, off 31%, and Preview Travel (merging with Travelocity), down 50% from its high. --JEANNE LEE

UPDATE: WILD TIMES IN CINCINNATI

The stock of consumer giant Procter & Gamble has run up 21% since we recommended it in August. But lately, CEO Durk Jager has been giving shareholders reason to reach for the PeptoBismol (a P&G product), starting and quickly dropping attempts to buy Gillette and drug companies Warner-Lambert and American Home Products.

Jager promised when he took over a year ago to shake things up at staid P&G, and these attempts at fast growth reveal both the boss' continuing dilemma and his early success at resolving it. The problem: P&G, like other consumer giants, must find a way to increase earnings at the low-teens clip Wall Street demands. But compared with other behemoths like Coca-Cola and Gillette, Cincinnati-based P&G is well on its way.

Gillette had a dismal 1999--sales fell 2%, net income dropped 12%--and analysts expect weak growth for several quarters. At Coke, earnings fell 31%, and the company said it will cut 6,000 jobs.

P&G has been there, done that. It's almost a year into a restructuring that trimmed 15,000 jobs and $900 million in costs. And P&G reported 7% sales growth and a 13% earnings increase for its most recent quarter, "very stellar growth for a company that large," says Banc of America analyst William Steele.

At $103 a share and a price/earnings ratio of 32, the stock is no longer a great buy. But current shareholders can let their stomachs settle. --LISA GIBBS

IS THERE VALUE IN THIS GARBAGE?

We've long admired the managers of Longleaf Partners for their value approach to investing and their willingness to close the fund to new investors. Now the fund has reopened after eight months, but before you decide to pile in, know what you're buying--trash.

About 16% of the fund's assets are in the stock of Waste Management, off 70% from its high after it revised earnings downward three times last year and the SEC launched an investigation into heavy insider selling before the stock tanked. The downturn was a big reason Longleaf returned a measly 2% in 1999, but don't expect the fund to dump the stock any time soon. "We have great confidence in new CEO Maurice Myers," says co-manager O. Mason Hawkins. Still, he doesn't expect a quick payoff. Neither should investors. --LAURA WASHINGTON

ANOTHER WAY TO PLAY THE NET

Mutual funds that specialize in Internet stocks have had breathtaking gains, but they charge equally breathtaking expense ratios--as much as 3% a year. Here's a lower-cost alternative cooked up by Merrill Lynch: Internet HOLDRs, which trade on the American Stock Exchange, give you instant exposure to a basket of 20 leading Net stocks. Like Spiders, which track the S&P 500 index, holdrs are sold through brokers, and their prices should stay in line with the value of the stocks in the portfolio. But unlike Spiders, HOLDRs can be redeemed for shares in the stocks in the basket. Since holdrs are unmanaged, Merrill says their expense ratio should be minuscule--less than 0.10% a year.

The Internet HOLDRs have risen 45% since their September debut. They're available only in 100-share lots, so at current prices you would need to invest at least $15,000 to buy them. That's a lot to pour into one high-risk sector of the market. Merrill has launched Biotech HOLDRs and plans to sell drug and telecom products too. --PAT REGNIER