I write about the small cap biotech space often on Real Money Pro, SeekingAlpha and as editor of Small Cap Gems. One of the frequently asked questions I get is what do I look for when identifying and purchasing “off the radar” small cap stocks, especially in the biotech sector. This is probably due to the huge winners I have identified in this space over the past six months including multi-baggers like Avanir Pharmaceuticals (Nasdaq: AVNR) and TetraPhase Pharmaceuticals (Nasdaq: TTPH).

This makes sense as nothing can provide the returns of investing in a small cap biotech or biopharma company that becomes a much bigger concern in these spaces. Just two decades ago Gilead Sciences (Nasdaq: GILD) was just another small cap equity. It is now a biotech juggernaut whose market capitalization is north of $150 billion and has returned over 14,000% in 20 years (that's not a typo).

When I scout for under-followed small cap stocks within these areas, I look for a couple of things. I want to see a company I believe is undervalued. I want an entity that can execute well against its game plan and has potentially lucrative growth prospects or could be a buyout candidate given the heavy amount of M&A activity in this space currently. Finally, I need to see a positive catalyst(s) that I feel could be a prelude to the stock going much higher. Here are a couple of attractive plays in this sector that could move up in January on positive events.

I started piling into Conatus Pharmaceuticals (Nasdaq: CNAT) a few months ago when the shares went for around $7 a share. The shares have moved past $10.50 a share but I am still holding on to them. The company's primary product is Emrisacan which is currently in five Phase II trials to treat various diseases of the liver including chronic liver failure and nonalcoholic steatohepatitis or (NASH). NASH is a very lucrative potential market due to a large segment of the population that eventually will be impacted by it.