The following is a list of stocks under $5 that are undervalued when comparing current price to the fair value price, calculated by the Graham Number equation.

Benjamin Graham, the man who developed this equation, was a former mentor of Warren Buffett and is the so-called godfather of value investing.

The Graham Number, or the maximum price an investor should pay for a stock, is derived using only two data points: current earnings per share and current book value per share.

The Graham Number = Fair Value of a Stock = Square Root of (22.5) x (Earnings per Share) x (Book Value per Share).

The math of the Graham number is relatively straightforward. It is predicated on the belief that the price-to-earnings (P/EPS) ratio should be no more than 15, and the price-to-book value (P/BVPS) ratio should be no more than 1.5.

From that, the product of the two should not be more than 22.5. In other words, (P/EPS of 15) x (P/BVPS of 1.5) = 22.5, from which the equation was created.

Do you think these companies could be undervalued?

Graham input data from Yahoo Finance, short float and performance data from Finviz, recent developments from Reuters.

List sorted by potential upside from current price, according to Graham fair value.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

**1. DryShips, Inc. (NASDAQ:DRYS): **Shipping Industry. Market cap of $1.44B.

Graham Number Data: BVPS at $9.64, diluted EPS at $0.21. Graham number = sqrt(22.5 x $9.64 x $0.21) = $6.75. Current price at $4.87 (implies a potential upside of 38.58%).

Other Sentiment Data: Short float at 7.53%, which implies a short ratio of 1.28 days. The stock has lost -14.86% over the last year.

Recent developments: Announced signing two drilling contracts, worth a sum of $237M (Jan. 2011). Announced the company has closed a private placement of common stock worth over $500M (Dec. 2010).

**2. Himax Technologies, Inc. (NASDAQ:HIMX)**: Semiconductor Industry. Market cap of $438.57M.

Graham Number Data: BVPS at $2.29, diluted EPS at $0.19. Graham number = sqrt(22.5 x $2.29 x $0.19) = $3.13. Current price at $2.45 (implies a potential upside of 27.71%).

Other Sentiment Data: Short float at 0.15%, which implies a short ratio of 0.62 days. The stock has lost -5.04% over the last year.

Recent developments: Announced Q1 2011 earnings guidance below analysts’ estimates (Feb. 2011).

**3. The McClatchy Company (NYSE:MNI):** Newspapers Industry. Market cap of $334.74M.

Graham Number Data: BVPS at $2.31, diluted EPS at $0.43. Graham number = sqrt(22.5 x $2.31 x $0.43) = $4.73. Current price at $3.94 (implies a potential upside of 19.99%).

Other Sentiment Data: Short float at 32.01%, which implies a short ratio of 19.01 days. The stock has lost -19.10% over the last year.

Recent developments: Fitch Ratings upgraded the Issuer Default Rating of the company to “B-” with a “stable” outlook (Feb. 2011).

**4. First Busey Corporation (NASDAQ:BUSE):** Regional Banks Industry. Market cap of $383.63M.

Graham Number Data: BVPS at $5.32, diluted EPS at $0.27. Graham number = sqrt(22.5 x $5.32 x $0.27) = $5.68. Current price at $4.85 (implies a potential upside of 17.22%).

Other Sentiment Data: Short float at 6.37%, which implies a short ratio of 28.58 days. The stock has gained 33.98% over the last year.

Recent developments: Announced an agreement for a registered direct offering of $54M of common stock and $31.9M of preferred stock (Dec. 2010).

**5. Platinum Group Metals Ltd. (NYSEMKT:PLG):** Industrial Metals and Minerals Industry. Market cap of $426.26M.

Graham Number Data: BVPS at $1.40, diluted EPS at $0.22. Graham number = sqrt(22.5 x $1.40 x $0.22) = $2.63. Current price at $2.41 (implies a potential upside of 9.23%).

Other Sentiment Data: Short float at 0.47%, which implies a short ratio of 1.25 days. The stock has gained 22.34% over the last year.

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.