Vegas Stock Play: Long Boyd, Short Perini

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Investors in casino stocks have gotten severely burned over the past year, as earnings multiples have fallen from historic highs and the economic downturn has ravaged profits.

After the whopping declines in the sector, it's worth sorting through the carnage to see if there are any good buys out there. The Bricks and Mortar mock portfolio already includes two casino stocks I feel are worth owning -- Melco PBL (MPEL Quote) and Penn National (PENN Quote), both of which, admittedly, have been disasters.

Nonetheless, I am a sucker for the casino sector. In the long run, the cash flows of casino owners remain somewhat steady, while also offering the potential for growth. At depressed multiples today, some steals exist, especially considering the asset value of irreplaceable casinos.

Today, I'm adding Boyd Gaming (BYD Quote) to the mock portfolio as a stock to own. Shares of the casino owner have fallen more than 70% in the past year to around $13 today, as Las Vegas casino results have weakened and investors remain nervous about the returns on Boyd's massive Echelon Place, a development slated to open on the Vegas Strip in late 2010.

Buying beaten-down casino stocks can be a risky trade today. To hedge the Boyd position, I'm also recommending investors short Perini (PCR Quote), the construction contractor for the Cosmopolitan Resort and Casino development in Las Vegas. Why? I believe the project has a meaningful risk of being cancelled, which would be a severe blow to revenue. But more on this later.