Casino stocks have been rocked over the past year as a tidal wave of bad news swept over Macau. The Chinese government is taking steps to discourage mainlanders from gambling in Macau as part of its anti-corruption crackdown. This effort caused a sharp drop-off in gambling activity in the region, sending casino stocks reeling. Although it has regained lost ground in recent months, Las Vegas Sands' (LVS 0.18%) stock price is down 28.5% over the last year, while Wynn Resorts (WYNN 0.56%) and Melco Crown (MLCO -2.92%) are down 35% and 38%, respectively.

The share price weakness affords investors a chance to buy one of the casinos at a low price -- but investors may be wise to avoid the other two.

Trouble brewing
Chinese President Xi Jinping's anti-corruption campaign is discouraging Chinese mainlanders from gambling in Macau. Xi's government is tracking gamblers -- especially high rollers -- by monitoring bank account and debit card transactions, among other methods. As a result of the anti-corruption initiative, VIP-financing companies are shutting down left and right, contributing to a 17% contraction in Macau's economy during the fourth quarter of 2014.

The once high-flying casino operators in the region are now feeling the pain of the slowdown. Total gaming revenue in Macau fell 39% year over year in March after a 49% decline in February. Wynn Resorts announced in March that it was encouraging staff to take unpaid leave, according to Hong Kong's The Standard. Melco Crown and Las Vegas Sands may have to take similar measures if business does not pick up soon. None of this is good news for casino stocks.

Cyclical or secular decline?
As Warren Buffett likes to remind us, markets filled with fear can be good hunting grounds for discerning investors. The carnage in Macau has caused many casino stocks to trade at significant discounts to the year-ago price, possibly creating an opportunity for long-term investors to scoop them up at bargain prices.

However, it is hard to know whether the downturn is cyclical, and will reward investors for buying on weakness, or secular, which could crush investors who buy today. The stock prices of Las Vegas Sands, Wynn Resorts, and Melco Crown reflect this uncertainty, having fallen substantially over the last year but still trading at high-teens price-to-earnings ratios. As a result, investors should try to find the safest casino stock that still offers a great value.

Make the safest bet
Las Vegas Sands appears positioned to reward investors if Macau makes a rebound, while providing substantial downside protection if the region never makes a full comeback. The company generates roughly 66% of its revenue in Macau. It secured a 22% market share in 2014, positioning it for massive gains if traffic picks up again. Moreover, its casinos appeal more to the mass market, which is not being targeted by the Chinese government to the same extent as the VIP market. This gives Las Vegas Sands a stronger source of revenue than that of casinos that cater to high rollers.

By contrast, Wynn Resorts and Melco Crown are not nearly as attractive. Wynn's focus on the VIP market exposes it to the most vulnerable market segment -- and the one that is least likely to return to its prior level due to the ongoing crackdown by Chinese mainland officials. The VIP focus also exposes Wynn to Chinese economic conditions, which have deteriorated in recent quarters.

Melco Crown, on the other hand, is more geared toward the mass market in Macau, but its stock trades at a richer valuation than Las Vegas Sands. Melco's forward P/E ratio based on analysts' estimates for 2016 earnings is 19.1, while investors can scoop up Las Vegas Sands at 17.6 times 2016 earnings. Wynn trades at 18.8 times forward earnings, making it less attractive than Sands on a pure valuation basis. Investors looking for a relatively stable casino operator trading at an attractive price should consider buying Las Vegas Sands.