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Medical appliance stocks: Analyst shares her picks

Investors got excited this week when Intuitive Surgical announced that its latest surgical robot was cleared by the Food and Drug Administration. But one analyst said she sees better buying opportunities among other stocks in the sector.

CRT Capital analyst Shagun Chadha told CNBC that her top pick among medical appliance companies is Spectranetics, a firm that sells the only commercially available laser technology for nonsurgical removal of blockages in the legs and heart.

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The company's "breakthrough" opportunity is its in-stent restenosis (ISR) products, Chadha said, adding that a projected $750 million ISR market opportunity alone should position Spectranetics to double its revenue base over the next few years.

The company's market capitalization stands at about $1.2 billion.

An Edwards Lifesciences Corp. SAPIEN transcatheter heart valve is assembled in a training room at company headquarters in Irvine, Calif.
Tim Rue | Bloomberg | Getty Images
An Edwards Lifesciences Corp. SAPIEN transcatheter heart valve is assembled in a training room at company headquarters in Irvine, Calif.

Chadha also likes medical device company Covidien, which she said has strong cash flow and can deliver 9-13 percent earnings-per-share growth.

"We think the company can return cash to shareholders ahead of its stated goals and increase its dividend payout. On a P/FCF (price to forward cash flow) basis, the stock is trading at over a 30 percent discount to Intuitive Surgical while offering a higher FCF yield," Chadha said.

'Margin deterioration'

Finally, Chadha named Edwards Lifesciences, which she called a leader in an underserved market for treating severe symptomatic stenosis, a heart-valve disease.

As for Intuitive Surgical, Chadha said the stock's rally is overdone given that the company has almost saturated the U.S. hospital market already.

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"Investors should be wary of the margin deterioration that will likely be associated with the placement of da Vinci Xi and the resulting impact on free cash flow," Chadha says.

Disclosure: Neither Chadha nor CRT Capital have a financial stake in nor serve any of the companies mentioned as clients.

—By CNBC's Dina Gusovsky.

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