Wager on Casinos' Comeback

It might be time to gamble on beaten-down casino stocks.

The sector has been under pressure since the beginning of the month, but casino operators' fundamentals remain strong. And if history is any indication, the gaming companies are headed for a rebound.

Each year during the spring-to-summer period, the sector tends to experience a selloff stemming from various investor fears, only to rally in the second half of the year.

This time around, bears are concerned about a slowing U.S. economy hurting Las Vegas casinos' revenue growth, along with the shrinking profit margins from increased supply in China's Macau region.

Bulls say both issues are overblown.

"I think this is a buying opportunity right here," says Larry Klatzkin, a casino analyst with Jefferies & Co.

Over the past month, the three casino heavyweights with Macau and Las Vegas exposure all have been battered by concerns about the markets.

Las Vegas Sands(LVS Quote) shares have slipped 14% from their recent highs in late April. The decline came after the company reported higher-than-expected expenses in Macau, mostly from hiring more employees in advance of the opening of the Venetian Macau casino in August.

Wynn(WYNN Quote) shares have fallen 10% over a similar time frame, even though the company posted very strong results at its properties in Macau and Las Vegas.