Chips are on the edge of a correction, but it could be the perfect time to buy

Chipmakers just fell into a correction and their tumble has market watchers split on whether the one-time favorites of the technology sector have any value left.

To Boris Schlossberg of BK Asset Management, the sector could be a strong buy after its swift decline.

"They got hit because of China concerns, obviously, and also because bitcoin has kind of fallen off the radar," Schlossberg, the firm's managing director of FX strategy, told CNBC's "Trading Nation" on Wednesday.

"But, I think when you look at the fundamentals, the business is supposed to increase by 8 percent this year which is a very healthy rise," he added.

Analysts on the Street put the group's growth prospects even higher. The U.S. semiconductor space is expected to post nearly 11 percent sales growth this year following a 17 percent increase in 2018, according to data compiled by FactSet. Earnings are forecast to rise by 23.5 percent.

"If SMH comes down to $100, I think it's going to be a very strong buy at that point," said Schlossberg.

The SMH VanEck Vectors Semiconductor ETF, an index of the 25 largest U.S.-listed chipmakers, has seen a sharp pullback this month. Its March drop puts it at $103.42 a share, roughly 3 percent above Schlossberg's buy target. The ETF has not dipped below $100 since the early February sell-offs that swept broader markets.

Chad Morganlander, portfolio manager at Washington Crossing Advisors, is not as bullish on the group's rebound.

"Let me be very clear here. They do have an exciting future, the exchange-traded fund, and as well, semiconductors. Unfortunately, it's fully reflected in the valuation of this group," Morganlander told "Trading Nation" on Wednesday.

The SMH currently trades at 23 times trailing earnings, slightly below the 23.6 times multiple on the Nasdaq. Individual sector names such as Nvidia and Texas Instruments trade at even higher multiples. The group's valuations shot up through February and early March after hitting a year-to-date bottom on Feb. 8.

"We will be fading this trade in the short run but also in the intermediate run," said Morganlander. "We would actually be avoiding this group."

The SMH bounced more than 1 percent higher in Thursday trading. It was hovering on the edge of correction territory, having fallen 9.7 percent from its 52-week high set March 13, days before the tech sector tanked. A drop of more than 10 percent indicates a correction.

The ETF is looking at a 3 percent loss to close out March, level with the decline seen on the S&P 500.

Disclosure: Washington Crossing Advisors and Chad Morgandlander do not positions in the SMH.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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