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This Metric Says You Are Smart to Buy Tellabs, Inc. (TLAB)

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Is Tellabs, Inc. (NASDAQ:TLAB) a good investment?

In the eyes of many of your fellow readers, hedge funds are assumed to be overrated, old financial vehicles of a forgotten age. Although there are In excess of 8,000 hedge funds with their doors open today, Insider Monkey looks at the elite of this group, close to 525 funds. It is widely held that this group has its hands on the lion’s share of all hedge funds’ total assets, and by watching their highest quality picks, we’ve deciphered a few investment strategies that have historically outstripped Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Just as necessary, bullish insider trading activity is another way to analyze the investments you’re interested in. There are a number of incentives for an insider to get rid of shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Several academic studies have demonstrated the market-beating potential of this strategy if investors know what to do (learn more here).

Tellabs, Inc. (NASDAQ:TLAB)

Thus, let’s examine the recent info about Tellabs, Inc. (NASDAQ:TLAB).

How have hedgies been trading Tellabs, Inc. (NASDAQ:TLAB)?

Heading into Q3, a total of 18 of the hedge funds we track held long positions in this stock, a change of 29% from the first quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully.

According to our 13F database, Third Avenue Management, managed by Martin Whitman, holds the biggest position in Tellabs, Inc. (NASDAQ:TLAB). Third Avenue Management has a $72.3 million position in the stock, comprising 1.4% of its 13F portfolio. On Third Avenue Management’s heels is Cliff Asness of AQR Capital Management, with a $25 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds that are bullish include John Fichthorn’s Dialectic Capital Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners and D. E. Shaw’s D E Shaw.

Now, specific money managers were breaking ground themselves. Third Avenue Management, managed by Martin Whitman, initiated the most valuable position in Tellabs, Inc. (NASDAQ:TLAB). Third Avenue Management had 72.3 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $25 million investment in the stock during the quarter. The other funds with brand new TLAB positions are John Fichthorn’s Dialectic Capital Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and D. E. Shaw’s D E Shaw.

How are insiders trading Tellabs, Inc. (NASDAQ:TLAB)?

Insider buying is particularly usable when the company in question has experienced transactions within the past 180 days. Over the last 180-day time period, Tellabs, Inc. (NASDAQ:TLAB) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also examine the relationship between both of these indicators in other stocks similar to Tellabs, Inc. (NASDAQ:TLAB). These stocks are 8×8, Inc. (NASDAQ:EGHT), Vocera Communications Inc (NYSE:VCRA), Harmonic Inc (NASDAQ:HLIT), Infinera Corp. (NASDAQ:INFN), and Sonus Networks, Inc. (NASDAQ:SONS). This group of stocks belong to the communication equipment industry and their market caps resemble TLAB’s market cap.

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