Traditional wisdom says vice stocks, such as MGM Mirage (NYSE:MGM), Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), are supposed to do well in tough economic times.

Today’s Financial News editor J. Christoph Amerger says if they are it’s news to MGM Mirage. On Tuesday, the company’s stock had plunged 10% since the casino complex opened.

The reality is the economically depressed may not have the money to fly to Las Vegas. J. Christoph says stay away from this sector…

Financial editors, by and large, are an uninspired lot. Give them a couple of years at their desks and sheer habit of repetition either turns them into incurable gold bugs or into dispensers of cyclical wisdom:

Lather. Rinse. Repeat.

The latter group tends to operate on simple stimulus-response. Call them stock reflexologists if you will. Have a hurricane warning? They turn into oil and gas bulls. Have gold go up by a buck? They start looking for inflation as a reason tyo buy more. Have a 10-20% drop in U.S. stock prices, maybe with an increase in unemployment to, say, 5.7%. They turn Dickensian.

Only that they’re typically young and American enough never to have experienced what an actual economic downturn looks like.

Accordingly, their ideas of how the Common Man reacts to economic adversity often strike me as, well, quaintly suburban.

In this sheltered world, the masses plagued by unemployment “traditionally” turn to “vice”. Much like your average local NPR commentator will blame increased smuggling of cigarettes in Maryland on 4.7% unemployment and “people having to keep their money together,” the stock reflexologist automatically looks at sin stocks.

Alcohol. Tobacco. And Gambling.

Because that’s what them unemployed do…

Then, there is real life: If drifters, grifters, and the involuntarily idle are indeed crowding into casinos, it’s news to MGM Mirage. On Tuesday, MGM plunged over 10% since it opened.

It’s still seven bucks above its 52-week low of $21.65, but the stock chart indicates that this classic sample of a sin and gambling stock is following the overall course of the wider equity markets.

So, by the way, is Las Vegas Sands - down 11%, Wynn Resorts - down 8%, and Boyd Gaming Corporation (NYSE:BYD) - down 8%.

Maybe investors should keep in mind that in real life, the economically depressed may not have the cash to fly to Vegas, either…

Of course, economic downturns do create sector-specific opportunity. They may be a bit harder to find these days, but they are Darn Good Investment (DGI) stocks out in the market right now…. companies with profits, growth, and stunningly low P/Es that can make up for short-term fluctuations with medium-term double-digit gains.

My colleague Laura Cadden has discovered one of these companies… a small aircraft manufacturer that not only increased its revenues by 11% and its net income by 27% in the second quarter over the same time last year. And its backlog actually went up by 9%.

We will release more information on this stock this coming Thursday during our TodaysFinancialNews.com Hot Stock Pick of the Week.

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Source: The House always wins: Investors lose big with MGM Mirage (MGM), Las Vegas Sands Corp. (LVS), Wynn Resorts (WYNN)