In this week's Stansberry Investor Hour, Dan welcomes Joel Litman back to the show. Joel is the founder and chief investment officer of our corporate affiliate Altimetry, where his team uses their Uniform Accounting system to look beyond the as-reported numbers in financial reports to see how companies are really performing.

Joel kicks things off by discussing the increases in the U.S. military budget and says that investors should be wary of which stocks they decide to buy. While overall military spending has gone up, certain branches like the Army have seen a decrease in spending, so it's vital to put your money to work in the right sector. Joel then shares that despite concerns over America's munitions being down and our supply-chain reliance on China, many companies are innovating to either break away completely by manufacturing what they need or substitute materials or products to achieve similar results. And Joel says that AI woes are overblown because of a few questionable stocks...

If companies that are also customers are taking investments in their vendors and vice versa, you'd say, well, that's a big issue if all these companies are just generating lower and lower returns. But they're generating earnings on this that are noticeable. And the earnings aren't phantom earnings, meaning what they're using in the AI demand that's out there from the biggest companies in the world... And sometimes it looks circular. And I'm not saying in OpenAI's case that that isn't concerning... [But if] you look at Nvidia and [Advanced Micro Devices] and... all the big hyperscalers, we can go one by one and say who's actually making money and who isn't.

Next, Joel explains why Altimetry uses Uniform Accounting and why serious accountants don't rely on generally accepted accounting principles ("GAAP") data alone. In short, GAAP accounting has become increasingly unreliable due to its many changes that misrepresent how a company is truly performing. Uniform Accounting cuts through the noise and creates a set standard to determine how well a business did during earnings season. And while the cyclically adjusted price-to-earnings ratio says the market is expensive, Joel says that metric is flawed and that the market is actually cheap...

You have earnings growth at 20%. That says the market is cheap. That is an inexpensive stock market. We would be buying all day long. Our dollar-cost averaging recommendation right now is five months. If you've got money that you have on the sidelines because you've been worried and you won't use that money for five to 10 years, [put it in] the S&P 500... starting today, and for five months, let it ride... Two years from now, or four years from now, or five years from now, we might get a real bad signal, a bear market signal. But [we see] none of those bear market signals... now.

Finally, Joel shares the dynamics and problems with buying IPOs. The greatest issue is not having enough financial data and having to wait months before you know enough details to judge if a company is worth investing in. Joel then mentions one major defense business that he's interested in and believes will do well. But he says the better opportunities are in the smaller companies. These are cheaper stocks that have more room to grow and, therefore, have potential for better returns. And while these are the kind of businesses that Warren Buffett would own, investors don't have to compete with him to buy them...

A [top defense company] gets a $1 billion contract. I don't know that it moves the needle as much, but you get a little billion-dollar company. It gets a $200 million contract. Man, does that move the needle – a $500 million contract. And so those are the ones that I'd say we like the most... If Buffett could be buying these microcap companies that are suddenly getting these giant budgets relative to the size of the company, Buffett would be down here buying these companies, too. But thankfully, we don't have to compete with Buffett because he can't buy companies as small.

Click on the image below to watch the video interview with Joel right now. For the audio version, click "Listen" above.

(Additional past episodes are located here.)

The transcript is coming soon.

This Week's Guest

Joel Litman is the founder and chief investment officer of our corporate affiliate Altimetry.

He has been on CNBC, quoted in Barron's and Institutional Investor, and interviewed in Forbes. He has been published in the Harvard Business Review, is a top contributor to Seeking Alpha, and co-authored the highly acclaimed book, Driven: Business Strategy, Human Actions, and the Creation of Wealth. He is a professor at Hult International Business School, a Financial Times and Economist top-ranked international MBA program. He conducts seminars regularly for financial and industry conferences around the world, such as for CFA and CPA chapters.

Joel is a member of CFA Institute, the global association for investment professionals, and the Association of Certified Fraud Examiners. He is a CPA (Certified Public Accountant) and received a B.S. in accounting from DePaul University and an MBA/MM from the Kellogg Graduate School of Management at Northwestern University.