Chips stocks have been crushed this month.
The SMH semiconductor ETF has tumbled more than 4% in August, a steeper drop than the broader technology sector and more than double the losses on the S&P 500. That marks a sharp reversal from a peak last month.
"Many of these stocks ... broke key resistance and made new highs in July, but those old resistance levels became new support, and a lot of them rolled back over and broke below those new support levels, including the SMH, the semiconductor ETF," Miller Tabak equity strategist Matt Maley said Friday on CNBC's "Trading Nation."
Since hitting an all-time high on July 24, the SMH has tanked nearly 10%. However, two stocks have resisted the downdraft, according to Maley.
"The first one is KLA Corp.," said Maley. "Not only did it bounce, it bounced strongly. It's up 6 to 7 percent off that old support level. So, it gives it a lot of wiggle room in case the market kind of falls, sees another leg lower anytime soon," said Maley.
KLA has surged 15% this quarter, far better than the 2% advance on the SMH. It is also up more than 50% this year.
"The second one is Texas Instruments. I mean, that stock was stuck in a sideways range for 18 to 19 months. And it broke above that range in July. And whenever a stock breaks out of a nice long-term sideways range, it usually gets a lot of upside movements," said Maley.
Texas Instruments has also outperformed during this quarter, though not by as much as KLA. The stock is up nearly 6% since the beginning of July and 28% higher for the year.
KLA and Texas Instruments also now yield more than the 10-year Treasury note after global rates plummeted.
Steve Chiavarone, portfolio manager at Federated Investors, advises looking past near-term weakness in favor of the potential long-term strength.
"It's a real mistake to focus on the short-term with this particular sector. I think it's akin to trying to pick up pennies in front of a tractor trailer," said Chiavarone. "The real underlying story is that we're essentially digitizing the entire physical economy. There's an industrial revolution that is built on the semiconductor chip. That is a secular theme that turns any of these kinds of pullbacks into long-term buying opportunities."
During the last pullback in the fall, the SMH declined 20% from an April peak to late May trough. It then rallied 27% to its record last month. The longer-term performance is even more impressive — over the past 10 years, the SMH is up 367%.
"Of course you want to own this group. Sometimes you're going to get a little better value, but you want to look at those downdrafts as real buying opportunities," said Chiavarone.