It is no secret that Iran is a saber-rattling nation. The country wants to be relevant on the global stage so much that it keeps up with its nuclear ambitions regardless of global trading sanctions and regardless of efforts from the Western nations trying to stop it. And now the big news is not the nuclear front, but an Iranian minister claiming that Iran could effectively block the flow of traffic through the Gulf of Hormuz easier than drinking a glass of water.

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

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