Biotech stocks have been on fire for much of the past 12 months, enjoying record levels of investor enthusiasm. The iShares NASDAQ Biotechnology ETF (NASDAQ:IBB), a benchmark for sector performance, offered a return of 42% over the past year as of Feb. 9. That's over twice the amount the S&P 500 had in the bag for investors during the same period. 

Unlike other sectors, one major driver behind biotech firms' momentum is their dedication to research and development. Companies in the industry typically reinvest more than 20% of their revenue in developing new treatment and therapies. Today, let us look at three top biotech stocks and how they could add wealth to your portfolio in the coming months. 

Scientists studying tissue samples in a laboratory.

Image Source: Getty Images.

1. Gilead Sciences

Gilead Sciences (NASDAQ:GILD) has had everyone talking after announcing superb 2020 results, especially in its antiviral pipeline. Its HIV drug, Biktarvy, is the number one most prescribed regimen for the disease in the U.S. About 1 in 2 patients with HIV receive the treatment. The drug generated an additional $2.5 billion in sales year over year in 2020.

Overall, Gilead's revenue and earnings per share (EPS) grew annually by 10% and 16% from 2019, to $24.3 billion and $7.09. A significant factor behind the increases is its coronavirus treatment drug Veklury (also known as remdesivir), which brought $2.8 billion in sales since it came on the market in May 2020. This year, it expects to sell an additional $2 billion to $3 billion worth of the antiviral.

Gilead also projects it can grow its sales and EPS to $25.1 billion and $7.45 for 2021. While that may not seem like a significant increase, its stock is already trading at rock-bottom valuations. You can buy Gilead shares for just 3.7 times revenue, which is far cheaper than the industry average of eight times revenue.

Approximately 67% of the free cash flow Gilead generates goes into shareholders' pockets, with $5 billion in dividends paid and $1.583 billion in stock buybacks in 2020. Gilead stock has a lucrative annual dividend yield of 4%. As an icing on the cake, its multi-billion-dollar biotech acquisitions are about to add impressive growth to its bottom-line. 

2. Regeneron Pharmaceuticals 

Regeneron Pharmaceuticals (NASDAQ:REGN) has been soaring thanks to its blockbuster drugs Eylea and Dupixent. It also has 30 therapeutics in development and plans to file regulatory approval for 14 new molecules and indications by 2023. Last year, it grew its revenue and EPS by approximately 30% year after year to $8.5 billion and $31.47 respectively.

Trading at 6.2 times revenue and 36.4 times free cash flow, its stock seems rather more expensive than its peers on this list. However, it has more than enough growth to make up for its current premium. Just last month, Regeneron secured a $2.625 billion contract with the Department of Defense (DoD) to provide 1.25 million doses of its coronavirus antibody cocktail, REGN-COV2.

REGN-COV2 prevented 57% of COVID-19 related medical visits in the overall population after dosage in clinical testing. In addition, it reduced the risk of death among patients who are severely ill with the disease by 22%. It also prevented 100% of symptomatic infections if administered early.

Shareholders will be partaking in the company's success. Right now, Regeneron generates about $2 billion in free cash flow, has over $4.7 billion in cash net of debt, and plans to buy back $1.5 billion worth of its stock this year. Over the past 12 months, shares of Regeneron are already up more than 29%.

3. Johnson & Johnson

Johnson & Johnson (NYSE:JNJ) is a world leader in consumer health, pharmaceuticals, and medical devices, with 28 of its products generating at least $1 billion in annual sales. Last year, it brought in $82.6 billion in revenue and reached $8.93 EPS, compared to sales of $82.1 billion and EPS of $7.5 in 2019, respectively. The so-so performance is largely due to the COVID-19 pandemic, which caused a decline in demand for non-essential medical procedures and equipment.

Next year, however, the company expects to increase its sales and EPS sharply, to upwards of $90 billion and $9.50 as the pandemic subsides with the launch of coronavirus vaccines. Speaking of vaccines, the company filed for emergency regulatory authorization of its own single-dose coronavirus prophylactic.

In clinical trials, the candidate demonstrated 66% efficacy at preventing COVID-19 infections and 85% efficacy in stopping severe cases of the diseases. J&J expects to deliver 100 million doses to the U.S. by the end of June and plans to manufacture 1 billion doses by the end of the year.

Keep in mind; the catalyst is not part of Johnson & Johnson's 2021 guidance. It should do much to help the company's already massive profitable bottom line. Last year, it brought $20 billion in free cash flow, invested $12.2 billion in research and development, and paid $10.5 billion to shareholders via dividends. The stock has an annual yield of 2.42%. 

Despite all its potential, Johnson & Johnson is only trading at 5.3 times revenue and 22.8 times free cash flow. Investors are clearly undervaluing its opportunity to make tens of billions in additional this year contingent on its vaccine candidate receiving regulatory clearance. This is a solid biotech stock you do not want to miss.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.