Medical device makers, like many manufacturers, have faced challenges over the past year from inflationary supply chain costs, staff shortages and a strong dollar that has impacted overseas sales. But the new year brought a more upbeat tone from firms in the sector, even as big tech players and others announced layoffs and sounded the alarm about a possible recession. “Based on commentary, the broader environment appears to be gradually improving and early Q4 forecasts are mostly above consensus,” KeyBanc Capital Markets analyst Matthew Mishan wrote in a note to clients. “We continue to believe in MedTech’s investment case for relatively recession-proof sales.” The sector is emerging from its worst decline since the financial crisis in 2008. The iShares US Medical Devices ETF (IHI) fell more than 20% last year, performing has underperformed the S&P 500. However, since 2007, the device sector ETF has averaged a gain of 14% annually, 6 percentage points better than the broader market index over the same period. Medical Device Stocks to Watch Against this backdrop, CNBC Pro examined medical device companies valued at over $1 billion that have buy ratings from at least 60% of the analysts who cover them, as well as an average price target , suggesting a gain of 30% or more in the coming year. Seven companies meet the criteria. Many have raised their prospects this month. One of the leading names was Paragon 28, a small-cap device maker that went public in 2021. The company specializes in plating and bone graft systems for treating ankle and orthopedic problems. Although not widely followed, all six analysts covering the stock rate it a buy, according to FactSet. The average price target suggests a near 50% upside over the next 12 months. “We believe Paragon 28 is hitting its growth stride and is positioned to capture share in the fastest-growing segment of the orthopedic market,” Canaccord Genuity analyst Kyle Rose said in a note to clients earlier this month. The company previously reported better-than-expected fourth-quarter sales of $51.2 million to $51.5 million, which would represent 20% year-over-year growth. Shockwave Medical also raised its outlook for 2022 and also increased its sales guidance for 2023. The maker of catheters used to treat hardened arteries told analysts last week that it is confident one of its marquee products will received the highest Medicare reimbursement rate of $17,000 in subsequent months; the company is in discussions with the Centers for Medicare and Medicaid. More than 60% of analysts rate the stock a buy, with the average price target suggesting 34% upside. But Oppenheimer’s Suraj Kalia doesn’t believe Shockwave’s bull case. He has a sell rating on the stock. “Our analysis suggests … their device is no better than many cheaper or low-cost devices already on the market. They haven’t demonstrated why they’re better or why they should be more expensive,” Kalia told CNBC. One standout on the list is Procept BioRobotics, which makes surgical robots to treat urological diseases. Nearly 90% of analysts rate the stock a buy with an average price target of $53, suggesting more than 30% upside. Earlier this month, the firm announced full-year 2022 advance sales of approximately $75 million, a more than tenfold increase over 2020 sales. CEO Reza Zadno told investors at the JP Morgan Healthcare Conference that their latest Robotic tools for the treatment of enlarged prostates are seeing strong growth. “We have a long way to go. And now patients want this procedure because they want efficacy, safety and longevity at the same time,” said Zadno. BTIG analysts Marie Thibault and Ryan Zimmerman believe M&A could be another catalyst for the medical device sector in 2023, with robotic surgery players likely to be of particular interest. “There are a number of emerging surgical robotics companies, and while many are unproven, companies like Medtronic and J & J are finding it more challenging to enter the ISRG space. We think MDT and JNJ could add some assets to integrate or strengthen their position in surgical robotics,” BTIG analysts said in a research note.