What happened

Shares of FedEx (FDX -0.95%) and United Parcel Service (UPS -0.14%) are plummeting today, down 7.2% and 8% respectively as of 1:30 p.m. EDT. You can blame Amazon.com (AMZN 0.83%) for that. (But don't kick it too hard: Amazon stock is also suffering today, down 4.8%).

Why all the selling? This morning, banker Morgan Stanley came out with a note explaining how, in its view, Amazon's new in-house airmailed-package delivery service "Amazon Air" -- 40 transport planes strong and growing -- is already starting to eat into the air-shipment businesses of FedEx and UPS.

Jet airplane taking off

Amazon Air is taking off -- and carrying away market share from FedEx and UPS. Image source: Getty Images.

So what

"Amazon Air could put 2% of potential revenue for UPS and FedEx at risk in 2018," argues Morgan Stanley today in a note covered by TheFly.com. And the situation's only going to get worse.

By 2025, investors may find that Amazon has taken over 10% of the air-freight revenue that would otherwise have flowed to FedEx and UPS. Amazon's new service is going to turn into a major headwind for the dedicated package deliverers, subtracting as much as "200-300 bps" (basis points) or more from the domestic air volume growth rates at both FedEx and UPS.

To account for this risk, Morgan Stanley cut its price target on FedEx stock by more than 4%, to $230 a share, and cut its UPS price target by more than 5% -- to $87 a share. (And that's on top of already underwhelming ratings the analyst has on both stocks -- "equal weight" for FedEx, and "underweight" for UPS).

Now what

Seeing FedEx stock trading for a mere 12 times trailing earnings, and UPS at a nearly-as-cheap 17 times earnings, investors may be tempted to rush in and buy either or both on hopes for a strong Christmas 2018 shopping season performance -- but I wouldn't recommend that.

FedEx stock may look cheap when valued on GAAP earnings, but the company's free cash flow is currently running negative -- and in fact, FedEx has been burning cash for more than two years straight. UPS, with $474 million in positive free cash flow, is at least generating cash again (it didn't last year) -- but UPS's FCF number is just a shadow of the $5.4 billion in "earnings" the company claims, which tells me those earnings are of exceedingly low quality.

And Amazon.com? I'd love to be able to recommend it, as Amazon seems to be the one stock of the three that's thriving. Problem is, at 65 times free cash flow and nearly 100 times GAAP earnings, Amazon stock is just too richly priced to make for a safe bet, even if it does seem likely to take a larger share of the transportation market.

Honestly, I think you're better off avoiding all three of them today -- which, judging from how their stock prices are performing, is precisely what most investors have decided to do.