Read: The 10 Most Expensive Weapons in the World

To understand the magnitude of these weapons’ budgets, one only needs to look at the recent government initiatives aimed to save the economy. The $868 billion cost of the most expensive weapons in the world is much more than the $700 billion set aside by Congress as part of the TARP to salvage the nation’s massive financial system. It is also more than President Obama’s $787 billion stimulus package approved by Congress in February 2009.

The Pentagon breaks the costs of weapons into two categories. The first is research and development. The second is the actual costs to buy the weapons. Together, the two figures can be staggering. The total cost of the Virginia Class Submarine, for example, surpasses $83 billion. That entire amount has been and will be invested to launch only 30 of the weapons. All told, it is an extraordinary expense base to maintain America’s defense.

24/7 Wall St. reviewed the figures from the Department of Defense budget and provided by the General Accounting Office to find the 10 Most Expensive Weapons in the World.”

In the age of austerity and military budgets being slashed to deal with deficits, Iran has a chance of turning 2012 accidentally into the year of defense stocks. Alliant Techsystems Inc. (NYSE: ATK), General Dynamics Corp. (NYSE: GD), L-3 Communications Holdings Inc. (NYSE: LLL), Lockheed Martin Corporation (NYSE: LMT) and Raytheon Co. (NYSE: RTN) could all hang in the balance. With operations all but gone in Iraq and with the trend in Afghanistan being one of leaving, Iran is the obvious wild card.

If anything real ever comes out of Iran’s religious political leadership other than how neat it is to stone people over adultery, how it denies that alternative lifestyles exist in Iran, or about how it wants nuclear power for peace, this may end up making the sell-off seen in defense stocks a bargain of the century. If (or when) Iran ever announces that it has built a nuclear bomb, it likely is going to be difficult for Western nations to slash and burn too far on the defense spending. Before running out and loading up on warfare stocks, please remember … this is all “If, Then.”

Alliant Techsystems Inc. (NYSE: ATK) trades at $56.15 and the 52-week trading range is $51.26 to $78.17. Thomson Reuters has a consensus price target of $71.70, implying upside of roughly 28%. Alliant Tech currently has a lower dividend yield against peers with only a payout rate of about 1.4% and shares are up about 4% since the Thanksgiving break. Alliant is highly dependent on the business of selling bullets and it no longer has the booster-rocket business from Space Shuttle launches.

General Dynamics Corp. (NYSE: GD) trades at $66.15 and the 52-week trading range is $53.95 to $78.27. Thomson Reuters has a consensus price target of $76.16, implying upside of about 15%. General Dynamics currently yields about 2.9%.

L-3 Communications Holdings Inc. (NYSE: LLL) trades at $66.85 and the 52-week trading range is $58.30 to $88.55. Thomson Reuters has a consensus price target of $71.64, implying upside of only about 7%. L-3 yields about 2.7% in its dividend and shares are up about 5% from the Thanksgiving break.

Lockheed Martin Corp. (NYSE: LMT) trades at $81.25 and the 52-week trading range is $66.36 to $82.43. Thomson Reuters has a consensus price target of $80.12, implying that the stock is above a full-value price. Its dividend yield is quite high at about 5% and shares are up almost 5% since its $1.00 dividend was reflected in the stock in late November.

Raytheon Co. (NYSE: RTN) trades at $48.50 and the 52-week trading range is $38.35 to $53.12. Thomson Reuters has a consensus price target of $49.53, implying upside of only about 2%. Its dividend yield is currently about 3.7% and shares are up about 14% since the Thanksgiving break.

Unless something new comes out of North Korea, or unless there is more unrest in the Middle East, Iran is the big worry for the country today. With such high payouts from some defense contractors, it is worth wondering just how high some of the payouts can rise during the proliferation of austerity.

JON C. OGG

iShares MSCI South Korea Index (NYSE: EWY) tracks the performance of publicly traded securities in the South Korean markets inside the MSCI South Korea Index and its shares are down 3.75% at $49.80 against a 52-week range of $40.65 to $69.99.

There are also two more fund vehicles via and ETF called The Korea Fund Inc. (NYSE: KF), down 2.4% at $39.54, and the closed-end fund called the Korea Equity Fund Inc. (NYSE: KEF) which is down 2,2% at $8.78.  Both generally have very light trading volume.  A much smaller and often illiquid play is the IQ South Korea Small Cap ETF (NYSE: SKOR) and its shares are down 5% at $25.59 against a 52-week range of $22.90 to $35.68.

There are three active and large ADRs from South Korea that we track which have NYSE share listings: POSCO (NYSE: PKX), the Korean steel giant, is down 2.9% at $81.47 and the 52-week range is $70.47 to $118.00; Korea Electric Power Corp. (NYSE: KEP) is down 2.3% at $11.28 and its 52-week range is $8.22 to $15.25; and finally SK Telecom Co. Ltd. (NYSE: SKM) is down 2.25% at $13.82 against a 52-week range of $13.35 to $20.29.

Trying to make any bold prediction about what leadership will rise and what policies will come ahead would be like asking a gunslinger to lead a charity fundraiser for children.  Of the defense sector, Alliant Techsystems Inc. (NYSE: ATK) is a top ammunition maker and its shares are up 1% at $55.99 and rocket-maker and missile-maker Raytheon Co. (NYSE: RTN) is up 1.2% at $46.07.  Any coincidence?

JON C. OGG

The aerospace and defense company is showing that it has full faith that the 787 Dreamliner is going to contribute handily to the bottom line for years and years.  Boeing’s CEO Jim McNerney announced the declaration of a $0.44 per quarter per common share dividend.

While the company announced that reports that this increase is by about 5% over its prior $0.42 dividend, there is a lot more to the story than just an ordinary dividend hike.  This was the first hike since it raised its dividend during the recession when it paid out the first dividend of $0.42 in February 2009. 

Prior to what will have turned into a 3-year dividend hiatus, Boeing used to raise its dividend annually… 2009, 2008, 2007, 2006, 2005… The last time it kept its dividend on hold for so long was when the payout was $0.17 per share per quarter from February of 2001 to February of 2004.

Boeing shares are still down close to 2% with the broader market today at $70.62 versus a 52-week range of $56.01 to $80.65.  The new adjusted yield would represent a yield of 2.5% for new investors today. Thomson Reuters has consensus estimates of $4.46 EPS for 2011 and $4.95 EPS for 2012.

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JON C. OGG

The US House-Senate budget reduction committee, or the ‘super committee’, that is charged with recommending $1.5 trillion in budget cuts over the next 10 years has just another 10 days to deliver its recommendations before automatic cuts of $1.2 trillion kick in. If the committee fails to agree on cuts, the automatic cuts fall equally among defense spending and a variety of programs that are together lumped under the heading discretionary spending.The discretionary spending cuts would likely come from federal programs that aid the poor, education, and the elderly.

No specific cuts have been identified in the legislation that created the super committee, but to achieve $600 billion in cuts over ten years is sure to cause some pain to a variety of constituencies. That amount is increased by the $350 billion in cuts already approved by Congress over the next ten years. Trying to discern where a publicly traded company might get hurt by impending cuts is, at this point, pretty much guesswork.

On the defense end, cuts are far more likely to have an effect on publicly traded companies that have significant federal defense contracts for everything from fighter planes to software. The following chart shows the top ten defense contractors in 2011, together with the total amount of their contracts, as derived from 2010 contract levels:

Privately held DynCorp International Inc. falls just above H-P, at $2.4 billion. Excluding DynCorp, the top ten contractors are slated to post sales of $47.6 billion in federal contracts in 2011. The top ten in 2010 posted sales of $68.2 billion. So far in 2011, a total of more than $196 billion in defense contracts have been awarded. The total in 2010 reached $247 billion, and that number is almost surely out of reach for this year.

Cuts to defense spending have already begun, as the US winds down its presence in Iraq and prepares to do the same in Afghanistan. Not including the wars in Iraq and Afghanistan, the Pentagon budget for 2011 reached nearly $550 billion.

The plant is part of Boeing’s Defense, Space, Security division and builds the H-47 Chinook helicopter and the V-22 Osprey, a tilt-rotor plane. According to the Philadelphia Inquirer, 14 people were also charged with attempted possession of the drugs being sold by their co-workers.  The investigation that led to the raid included users “because of the critical role that these employees play in manufacturing military aircraft,” the US District Attorney said.

That makes this more than just another bruise to Boeing’s ego. The Defense Department could delay production at the plant while it inspects, or forces Boeing to inspect, the aircraft that have come from the plant for the past year or two. That will certainly cost Boeing some money, even though it is unlikely to shut down the plant for good.

The drugs involved including pain killers fentanyl and oxycodone, and the anti-depressant Xanax. All typically cause drowsiness and other side effects that could hamper work performance.

Boeing ought to take this incident seriously. US military pilots and crews deserve better than this from the makers of their equipment. This incident is, or should be, about more than just a few bad (low-level) apples who want to get high at work. Boeing management should also be on the line here.

Paul Ausick

The announcements are almost always tied to restructuring of companies, but you can’t have that many big companies simultaneously hiding behind this excuse. What is obvious as a sore thumb is that the weak economy is continuing to hurt business fundamentals, forcing companies to pare down their head counts. Economists also know that there is a difference between furloughs and layoffs. Layoffs generally imply that businesses are anticipating a longer period of slowness. When you see this many layoffs at this many companies at once, the obvious answer is that a system wide weakness is not just present — it is building.

This trend comes at a time when corporate balance sheets are stronger than ever, with many buying back stock and increasing dividends. Interest rates are close to record lows again. The gridlock over the debt ceiling and budget deficits further motivated companies to sit back and not hire. The growing sense is that the new round of layoffs at the major companies may be followed by more layoffs at rival companies.

How long can that last if the economy keeps sliding? From Borders to Research In Motion, to Cisco, pharmaceutical companies, banks, and Wall Street firms — all are getting pushed out the door. Meanwhile, economic indicators are getting worse rather than better. If the numbers get any softer, don’t be surprised by more layoff announcements. At a minimum, this will keep the larger corporate employers from having to make new hires.

The Layoff Kings of 2011

Borders Group is now bankrupt and the last of the workers are solely conducting store-closure sales. All stores were being closed, and more than 10,000 workers are wondering if they can get a job at a library or another book store. While particularly in Borders’ case, the shift to digital may be partly to blame, along with with poor management, but the economy is certainly also playing its part in curbing consumer purchases.

Boston Scientific Inc. (NYSE: BSX) announced plans in July to trim an additional 5% to 6% of its workforce. This puts the layoffs between 1,200 to 1,400 employees through the end of 2013. The aim is to cut $225 million to $275 million from the yearly operating costs. Sadly, this is at the same time the company is expanding its China workforce.

Cisco Systems Inc. (NASDAQ: CSCO) has recently announced it would lay off 6,500 employees, or 9% of its full-time workforce. The company aims to trim about $1 billion from its operating costs. But some question whether this is enough, so this number could increase. Consequently, news outlets have claimed that as many as 10,000 layoffs will be announced. This “rebalance” is going to be somewhat system wide and affect many management positions, including about 2,100 who accepted early retirement packages.

Delta Air Lines Inc. (NYSE: DAL) is not imminently sending its workers home packing, but it announced in late July that about 2,000 workers — out of its more than 80,000 workers — have accepted voluntary buyouts as the carrier trims flights. Whether the latest drop in fuel matters or not is up in the air (no pun intended).

ITT Corporation will operate its core businesses and will continue to trade on the New York Stock Exchange, under the symbol “ITT.”  ITT Corporation will retain the current corporate name, logo and “Engineered for life” company tagline and its new description is “a global specialist in the engineering and manufacturing of critical components that provide highly customized solutions for its customers.”

The newly separated companies also intend to have their shares listed on the New York Stock Exchange.  The future water company will be named Xylem and will list under the ticker symbol “XYL.”  The future defense company will be named ITT Exelis and will list under the ticker symbol “XLS.”

Until completion of the spinoffs, ITT Corporation will continue to operate with the existing segment structure and division names.  Xylem and ITT Exelis plan to unveil their new logos and further information on their new brands at a later date.

Shares of ITT recently closed at $57.26.  Its 52-week range is $42.05 to $64.00.  The current market capitalization is $10.5 billion, but that will soon change.

JIM BERDOU

The move is a bit of a puzzler. The company’s largest revenue share comes from its defense business, which posted net sales in its second fiscal quarter, ending in March, of $971.3 million. In the same period a year ago, net sales in the defense segment totaled $2.27 billion. Income from continuing operations in defense totaled $453 million in the second quarter of 2010, compared with just $142 million in the second quarter of 2011.

The rest of the company didn’t do so well either. In the second quarter of 2010, operating income totaled $494 million, compared with just $132.4 million this year. Sales of vehicles like fire trucks to municipalities also fell, as you would expect given the financing troubles facing so many US cities.

Still, the defense business is key. Oshkosh has a contract to produce an all-terrain vehicle for the US Army, but the new machines are less costly than the older version. Switching from the old to the new has been costly and the newer vehicles haven’t ramped up production yet.

When Icahn’s holdings were revealed, the company issued a statement saying that it “believes Mr. Icahn’s investment is evidence of his belief in the value of the Company,” and that the company is “open to dialogue with its shareholders.”

It’s a pretty safe bet that the dialogue will begin with a blast at the company management’s poor performance and proceed from there into how the company plans to regain its lost sales and profits. Oshkosh’s openness to dialogue will be tested early and often.

Oshkosh shares closed at $28.94 yesterday, but after-hours and pre-market action have pushed them up by 8.33%, to $31.35 before the open today. The stock’s 52-week range is $24.63-$40.11. The median price target for the shares is $38.50, and the stock’s trailing P/E is just 5.33.

Paul Ausick

The annual Defense Department budget is just over $680 billion right now. The Administration has promised to cut that. Many outside observers believe this effort should concentrate on the dozens of programs for new weapons that are never used and the cost of general staff officers who fly around the world as they make inspection.

The really large costs of defense are obviously the supply and maintenance of troops that are abroad and the military’s traditional role as a worldwide police and enforcement body. Expense could be lowered if other nations would spend more on their military operations. Why should the U.S. defend Japan or Eastern Europe, or police Iraq for that matter?

The “too much fat” notion is always a convenient way to accuse the military of poor management and improper implementation of the plans set out by Congress and the President. The military is poorly run for the same reasons that Wal-Mart and GM are. Every organization with tens of billions of dollars in costs is inefficient by nature. No level of excellent management can solve that entirely. West Point is no better a training ground for efficiency control than Harvard Business School.

Reports from think-tanks that discuss the federal government nearly always hurt their analyses when they add to perfectly sensible recommendations an insistence that the Defense Department, or any other large government agency, would save a great deal of money if it could find and replace all of the $600 toilet seats and $1,000 wrenches. That is hardly the case. Big missions are what cost big money. The analysis of the military’s costs should be left at that. Four star admirals do not spend their time counting paper clips.

Douglas A. McIntyre