Biotech stocks were huge winners for investors last year, with some seeing 1,000% gains. The SPDR S&P Biotech Index was up 56% over the past year, compared to 17% for the S&P 500 Index.

According to a report by MarketWatch, biotech spending is likely to increase to $510 billion by 2027, a compound annual growth rate (CAGR) of 6.1% from 2020. If you're looking for a stock in this sector to add to your portfolio, Amgen (AMGN 0.89%), Trillium Therapeutics (TRIL), and Illumina (ILMN -0.89%) are solid biotech choices for this month.

Magnified image of a gene sequence.

Image source: Getty Images.

1. Amgen: Plenty of reasons to like it

Amgen, founded in 1980, is one of the older, larger biotech companies in the world. It has a huge pipeline of 41 drugs, and with 26 in phase 3 trials, the odds are good that there will be another blockbuster in that mix to add to its current list of big sellers, including immunosupressant Enbrel and osteoporosis drug Prolia. .

While its share price was flat over the past year, Amgen had solid revenue growth in what has been a difficult year for many biotech companies. It reported revenue of $17.9 billion through nine months, a rise of 9% year over year.

The company's biggest sellers in the third quarter were Enbrel, which had $1.3 billion in revenue, down 3% year over year, and Prolia, which had $701 million in revenue, up 11% over the same period in 2019. Keep an eye on psoriasis drug Otezla, whose sales in its first full year were $538 million; cardiovascular drug Repatha, whose sales of $205 million represent a 22% raise over the previous year; and migraine drug Aimovig, which had sales of $105 million, up 59% year over year.

I think a lot of people forgot about Amgen because it didn't have a COVID-19 vaccine candidate. What it does provide, however, is a nice dividend that works out to a yield of 2.95% -- well above the S&P 500's current average of less than 2%. In December, the company raised its dividend by 10% to $1.76 per quarter; it has issued a raise every year since the dividend was instituted in 2011.

AMGN Chart

AMGN data by YCharts 

2. Trillium Therapeutics: How high can it go?

Trillium Therapeutics has rewarded investors with share gains of more than 420% over the past year. Though the immuno-oncology company hasn't turned a profit yet, it has two very promising candidates in its pipeline, TTI-621 and TTI-622, that the company says can block CD47, the signal cancer cells use to hide from the body's immune system.

The drugs are in phase 1 trials to fight solid tumors and blood cancers that begin in stem cells or bone marrow cells, so they're a long way off from being marketed, but they have enormous potential. Pfizer certainly thinks so, as it bought $25 million worth of the company's common stock last year. Forty Seven, another company that is working on CD47 blockers, was bought by Gilead Sciences for $4.9 billion last year, demonstrating the promise pharmaceutical companies see in the therapy.

The advantage to both of Trillium's lead candidates is that unlike other CD47 blockers, they don't bind to red blood cells (which also have CD47), meaning that TTI-621 and TTI-622 won't cause anemia. Another advantage to the two is they are considered monotherapies: They don't require other drugs to be effective in getting the body's own immune system to engage.

If you're looking for a steady stock, though, this probably isn't it. The chart of the company's stock price in 2020 looks like a roller-coaster ride. At this time last year, Trillium was selling for $2.49 per share, but by Nov. 30, it was selling for $20.13 a share. By mid-December, it was back down to $11.63, only to climb to $15.51 at the end of last week.

3. Illumina: on the precipice of something big

Illumina doesn't make drugs, but it is a biotech company that specializes in manufacturing DNA sequencing equipment, developing and selling systems for large-scale analysis to understand genetic variation, especially as it relates to cancers and other diseases.

One of the most exciting things Illumina is working on is liquid biopsies that use a blood sample to screen for multiple types of cancers by tracking the genetic material shed in the blood by types of tumors. Liquid biopsies could be especially important for tumors that are positioned deep inside a patient's internal organs, making tissue-based biopsies problematic. In September, the company bought Grail for $8 billion; Grail, which specializes in liquid biopsies, was a former division of Illumina that had spun off from the company in 2017. Management explained the move by saying that it expected Next Generation Sequencing oncology testing, which can use liquid biopsies to analyze multiple short fragments of DNA for tumors, to grow from what is considered a less than $10 billion market now to $75 billion by 2035.

The stock is up a little more than 13% over the past year, though that number is misleading because, like Trillium, the company had a wild ride in 2020. It was trading last week at $382 a share, a ways away from both its 52-week high of $404.20 on Aug. 5 and its 52-week low of $196.78 on March 18.

Until last year, the company had a 15-year string of increasing revenue every year. Through the first nine months of 2020, revenue was down 11%, as a lot of hospitals held off on buying sequencing equipment when their own revenues were weak. Illumina's gross margins were down as well, but still pretty strong at 66.2%.

Considering the company's revenue growth was disrupted by the pandemic, I see a strong opportunity for the stock to bounce back, particularly once COVID-19 vaccines are widely distributed.

Making a choice that could really pay off

The safest choice of the three biotech stocks is clearly Amgen, which has the longest history of growth and a huge pipeline that will continue to drive revenue for years to come. It is also the best priced, with a forward price-to-earnings ratio of 14, compared with 52 for Illumina (the biotech sector's average is about 31).

Trillium does not yet have significant earnings. It is, however, the stock on this list with the most potential. Positive news on either of its two lead candidates could propel the stock to new highs.

AMGN PE Ratio (Forward) Chart

AMGN PE Ratio (Forward) data by YCharts 

Illumina is kind of the middle ground between those two stocks. With less risk than Trillium and revenue that's already growing, it could also have a big year and may be the best long-term choice of the three.