What do Warren Buffett, Peter Lynch, and Seth Klarman all have in common? Not only are they widely viewed as some of the greatest investors of the modern era, they are all notable value investors. 

Value investing is an approach in which investors seek to buy stocks that they feel are underappreciated by the broader market. Sometimes these stocks are cheap because they are dealing with a temporary challenge that long-term investors believe will ameliorate. Value investors believe that these stocks will eventually increase in price when the rest of the market comes around to them.

This approach is sometimes compared to trying to buy a $100 bill for $80. The current market environment, in which the S&P 500 and Nasdaq are in bear territory and many stocks with high valuation multiples have fallen sharply, is a good reminder that value is always important. Here are three cheap value stocks that you can buy now, before the market comes around to them.   

A young woman checks out a vase that she bought online.

Image source: Getty Images.

1. Williams-Sonoma 

Williams-Sonoma (WSM -1.14%) is a great example of a good company dealing with some temporary headwinds, making it a good fit for value investors. Shares of the omnichannel furniture retailer (which owns brands such as Pottery Barn and West Elm) are down 44% from their 52-week high. That's because the market fears inflation and a slowing economy will curb demand for high-end furniture. But these concerns seem to be priced into the stock, which now looks attractive at just 7 times earnings.

With a valuation this cheap, you might expect that Williams-Sonoma is a value trap with declining growth. That isn't the case at all -- the company has grown earnings per share at an average of 50% a year over the last three years, and earnings per share are now three times what they were in 2019. Furthermore, this is no stodgy brick-and-mortar furniture store -- 66% of Williams-Sonoma's revenue comes from its e-commerce channel.

Williams-Sonoma's revenue could grow significantly over time as consumers shift toward buying more housewares and furniture online. According to data from Euromonitor, this category is underpenetrated by e-commerce at just 30%. Williams-Sonoma is capitalizing on this trend with e-commerce revenue expanding at a 9.7% compound annual growth rate (CAGR) over the past 20 years.  

Like many value stocks, Williams-Sonoma pays attention to its shareholders. The company has returned $2.5 billion to them over the past five years through dividends and share repurchases. Williams-Sonoma's dividend currently looks appealing with a yield of 2.7%. 

With a strong track record of earnings growth and more growth to come as e-commerce becomes a bigger part of the home goods industry, Williams-Sonoma looks like a top growth stock disguised as a value stock. At just 7 times earnings, it's a top buy for value investors. 

2. Fortune Brands Home & Security 

Like Williams-Sonoma, Fortune Brands Home & Security (FBIN -0.18%) is a company with a long history of creating shareholder value that is down markedly from its 52-week high due to the same concerns about inflation and housing. As with Williams-Sonoma, this has created the opportunity to buy a great stock at a cheap valuation. At 11 times earnings, Fortune Brands isn't quite as inexpensive as Williams-Sonoma, but this is still an attractive valuation and one that is cheaper than the broader market.

Fortune Brands owns and operates over two dozen home and security brands across three different segments -- water innovations, outdoor and security, and cabinets. You may be familiar with some of the company's brands such as Moen, Master Lock, Therma-Tru Doors, and SentrySafe. While it might not sound like the most exciting business, there's nothing boring about the company's long-term performance. From 2012 to 2021, Fortune Brands increased earnings per share from $0.83 to $5.73 -- an incredible 24% CAGR.

The company has also returned over $4 billion to shareholders via a combination of dividends and share repurchases over the years. With these characteristics, it's unsurprising that the stock has returned over 400% since going public in 2011.

Fortune Brands is a company with a strong track record, a portfolio of high-quality brands, and a commitment to shareholder returns -- and the stock is trading at an attractive valuation, making it a buy for value investors. 

3. Taiwan Semiconductor 

You might not think of a high-tech semiconductor manufacturer as a value stock, but after a 44% sell-off from its 52-week high, that's exactly what Taiwan Semiconductor Manufacturing (TSM -0.36%) is. Concerns about a supply glut in the cyclical semiconductor space have caused Taiwan Semiconductor to sell off, and shares of the world's largest contract chip manufacturer now trade at just 14 times earnings.

Over the long term, the company's products will continue to be in demand as it manufactures chips for the likes of Apple, Nvidia, and Advanced Micro Devices. These chips go into end markets that will drive demand over time, like automotive, mobile devices, high-performance computing, and artificial intelligence.

Taiwan Semiconductor's ability to make the smallest and most advanced chips in the market allow it to exercise enviable pricing power, as demonstrated by the company's 57% gross margin. 

Like the other value stocks on this list, Taiwan Semiconductor returns capital to shareholders. It has paid a dividend for 17 years in a row and the shares currently yield 2.3%. The stock has returned 375% over the past decade, making the current slide look like an attractive entry point to get on board this long-term winner.

Value investing is an approach that has proven its mettle over time. In the current market environment, high-quality long-term growth stories like these three that you wouldn't normally think of as value stocks have entered value territory, making them compelling buys.