Let's begin with three names: US Airways (NYSE:LCC), Continental Airlines (NYSE:CAL), and General Motors (NYSE:GM).

And now a question: Notice a theme here?

These are the kinds of companies that try analysts' souls -- not to mention their patience and paychecks. Each has been the bane of Wall Street in recent years, textbook examples of "legacy" companies whose business models were outmoded in the new millennium. Or so said the Gucci-loafer set, who have expressed their collective opinion with five-year earnings growth estimates that clock in well below those companies' respective industries.

Guess what? All three have posted big gains over the past year. Meanwhile, the highly touted likes of Amazon.com (NASDAQ:AMZN), eBay (NASDAQ:EBAY), and Yahoo! (NASDAQ:YHOO) -- firms with consensus earnings-growth estimates in excess of 20% -- have hit the skids, shedding double-digits of value on a year-to-date basis.

Don't get me wrong
Anyone trying to make a long-term case for distressed companies faces an uphill battle. And when, on the other hand, companies with promising forward-looking prospects and strong fundamentals are trading on the cheap, that's generally a good time to dive on in.

Still, savvy types know that not all turnaround plans are pipe dreams. What's more, while a healthy dose of skepticism can go a long way when it comes to investing, sometimes it can go too far, costing you gobs of money along the way. Another case in point: Pfizer (NYSE:PFE) -- one more analyst-estimate laggard -- has gained 25% thus far in 2006.

The trick when it comes to investing in troubled firms, of course, lies in learning how to separate the values from the value traps. On that front, the time to buy is when they're trading well below a conservative estimate of their "intrinsic value" -- a number that should reflect their distress -- and with what investing luminary Benjamin Graham famously called a comfortable "margin of safety."

Once you can fill in those all-important blanks, you'll be in good position to determine if a seemingly speculative play might also be a smart, money-making proposition. And just as important: You'll also know when it's time to sell.

As it happens ...
Intrinsic value and margin of safety are two key concepts that my Fool colleague Philip Durell works with at his Inside Value investing service. Philip is also a huge fan of free cash flow (FCF) -- a company's cash from operations minus its capital expenditures -- and high-quality corporate management teams, too.

Those criteria steer him and his Inside Value members clear of shaky speculative bets and toward companies that have simply hit a rough patch and whose shares have been "oversold" -- perhaps on the basis of analyst sentiment -- as a result.

The Foolish bottom line
If that sounds like a winning investment strategy to you, click here and a free 30-day guest pass to Inside Value is yours for the taking. Your pass is of the all-access variety, so you'll be able to check out Philip's complete list of recommendations as well as every column inch of advice he's offered his members since the service's debut.

A handy-dandy calculator you can use to determine whether a company is trading within your margin of safety is part of the plan, too, so click here to get started. As you'll see, there's plenty of money to made by investing in out-of-favor stocks -- provided you know how to find 'em.

Shannon Zimmerman runs point on the Fool's Champion Funds newsletter and co-advises GreenLight, a Fool service designed with investing newbies in mind. At the time of publication, he didn't own any of the securities mentioned above. Amazon.com, eBay, and Yahoo! are Stock Advisor choices. Pfizer is an Inside Value recommendation. You can check out the Fool's strict disclosure policy by clicking righthere.