Even troubled parts of the economy offer promising stocks — if you know how to look.

YOU’VE PROBABLY BEEN TOLD to keep things simple when it comes to managing your portfolio. And that’s typically good advice. Yet I’m reminded of that famous quote from Albert Einstein, who said, “Make everything as simple as possible — but not simpler.” One way we oversimplify is by falling into the “bad industry” trap. Here, investors write off entire segments of the market, thinking it’s just too tough to generate good returns in certain industries.

On one level, it makes sense. Challenged businesses like airlines or trucking or real estate are often intensely competitive and require tons of capital.

But a hallmark of bargain hunting is being willing to tread where others fear to go. You can find good investments just about anywhere, as long as you focus on firms that generate lots of cash; have a long track record of high profitability, meaning they know how to invest money wisely; and trade cheaply. Also, stick with businesses strong enough — or whose products are unique enough — that it’s hard for competitors to cut into their share (at Morningstar we call this having an “economic moat”).

And if you find such gems in troubled areas, their strength relative to their peers could help them cement their dominance for years to come.

For instance, trucking may be a business that drives you away because it’s so capital-intensive and vulnerable to the economy and fuel costs. But you don’t have to go with a company that owns or operates the trucks itself. C.H. Robinson Worldwide (TICKER: CHRW) is a firm with S8 billion in sales that functions as a travel agent of sorts for trucking. The business is made up of computer networks and people who connect shippers and truck drivers. Even in a tough economy, this firm has generated 40% returns on invested capital. Yet the stock trades more than 12% below what Morningstar analysts think it’s worth.

Recently I’ve been dumpster diving in another pretty tough industry — real estate — and came across the title insurance company Fidelity National Financial (FNF). The economics of title insurance are solid even if housing isn’t: Four firms control 90% of the market, and No. 2, Fidelity, recently bought No. 3, LandAmerica, creating a behemoth that dominates almost half the market.

Fidelity thinks it will be able to improve its profitability, a likely bet given that title insurers should enjoy slightly better pricing after this round of consolidation. Fidelity also recently cut LandAmerica’s workforce by about 40%. And once real estate comes back to life, the firm should enjoy a tailwind (every property sale requires title insurance, so Fidelity’s revenue will rise as real estate transactions rebound).

At Morningstar we think FNF can generate at least $2 a share in earnings. Based on conservative price/earnings ratios, that puts the value of the stock in the $20 to $25 range — pretty good, given that the shares are at around $15 now. ■