NEW YORK (TheStreet) -- Biotech, driven by the demand for effective treatments and new cures, is one of the hottest investment areas today. There has even been speculation of a biotech bubble and speculation can often drive stock movement.

The sector has been growing at an annual rate of 9% since 1997, well above the overall economy. 

The U.S. dominates the Biotech industry, both in terms of number of firms (6,862) and research and development spending ($26 billion in 2014).

So, what are the best biotech companies investors should be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which three biotech companies made the list. And when you're done be sure to read about which online retail and e-commerce companies to buy now. Year-to-date returns are based on May 18, 2015 closing prices. The highest-rated stock appears last -- read more to see which one is No. 1.

BIIB ChartBIIB data by YCharts
3. Biogen Inc. (BIIB)

Rating: A-

Market Cap: $93 billion
Year-to-date return: 16.5%

Biogen Inc. discovers, develops, manufactures, and markets therapies for the treatment of neurological, autoimmune, and hematologic disorders in the United States and internationally.

"We rate BIOGEN INC (BIIB) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • BIIB's revenue growth has slightly outpaced the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 20.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • BIIB's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, BIIB has a quick ratio of 1.98, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Biotechnology industry and the overall market, BIOGEN INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Powered by its strong earnings growth of 72.77% and other important driving factors, this stock has surged by 33.00% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, BIIB should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.

GILD ChartGILD data by YCharts
2. 
Gilead Sciences, Inc. (GILD)
Rating: A

Market Cap: $164 billion
Year-to-date return: 17.8%

Gilead Sciences, Inc., a biopharmaceutical company, discovers, develops, and commercializes medicines in areas of unmet medical nee in North America, South America, Europe, and the Asia-Pacific.

"We rate GILEAD SCIENCES INC (GILD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GILD's very impressive revenue growth greatly exceeded the industry average of 19.9%. Since the same quarter one year prior, revenues leaped by 51.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 107.51% and other important driving factors, this stock has surged by 34.29% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GILD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • GILEAD SCIENCES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GILEAD SCIENCES INC increased its bottom line by earning $7.38 versus $1.83 in the prior year. This year, the market expects an improvement in earnings ($10.70 versus $7.38).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Biotechnology industry. The net income increased by 94.5% when compared to the same quarter one year prior, rising from $2,227.41 million to $4,333.00 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Biotechnology industry and the overall market, GILEAD SCIENCES INC's return on equity significantly exceeds that of both the industry average and the S&P 500.

AMGN ChartAMGN data by YCharts
1. Amgen Inc. (AMGN)

Rating: A+

Market Cap: $124.3 billion
Year-to-date return: 2.6%

Amgen Inc., a biotechnology company, discovers, develops, manufactures, and delivers human therapeutics worldwide. It focuses for the treatment of illness in the areas of oncology, hematology, inflammation, bone health, nephrology, cardiovascular, and general medicine.

"We rate AMGEN INC (AMGN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and reasonable valuation levels. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 50.71% and other important driving factors, this stock has surged by 44.53% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AMGN should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • AMGEN INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AMGEN INC increased its bottom line by earning $6.70 versus $6.65 in the prior year. This year, the market expects an improvement in earnings ($9.61 versus $6.70).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Biotechnology industry average. The net income increased by 51.3% when compared to the same quarter one year prior, rising from $1,073.00 million to $1,623.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 11.3%. Growth in the company's revenue appears to have helped boost the earnings per share.

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