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Hedge funds disclosed their first-quarter holdings a couple of weeks ago. There has been significant media interest in the most popular stocks among hedge funds. Actually, the rankings didn't change compared to the end of 2011. Apple (NASDAQ:AAPL) was still the most popular stock, followed by Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT). Contrary to popular opinion, long/short equity hedge funds don't trade very frequently. Apple and Microsoft have been among the top three most popular stocks since at least the end of 2010. Investors would have profited handsomely if they had bought these stocks in early 2011.

In this article we are going to take a closer look at stocks that experienced a significant amount of hedge fund interest recently. Some of these stocks have the potential to become hedge fund darlings over the next six months.

1. Illumina (NASDAQ:ILMN): Shares were trading above $35 in February before it received an offer from Roche Holdings AG. The stock jumped above $50 after the announcement and that's probably when hedge funds bought in. There were 17 hedge funds with Illumina positions at the end of December. That number stood at 49 on March 31. Unfortunately, Roche's tender offer expired and Illumina currently trades around $44. Hedge funds probably lost more than 10% on this trade. James Dinan and Andreas Halvorsen are among the hedge fund managers who bet more than $100 million on this stock.

2. American International Group (NYSE:AIG): This company is a candidate to become a hedge fund darling. There were 45 hedge funds at the end of March, vs. 21 hedge funds in December that had positions in this name. Bruce Berkowitz has been a long-time AIG investor. His total position in AIG approached $3 billion at the end of March. Robert Pitts' Steadfast Capital, Steve Cohen's SAC Capital, and Leon Cooperman's Omega Advisors initiated new bullish positions in the stock. The government still owns the majority of AIG shares and investors expect the government to sell its shares at around $29, which is the breakeven price for the U.S. Treasury. This creates an overhang and keeps investors away. As the government winds down its stake, we believe AIG could trade above $50 over the next 24 months.

3. Zynga (NASDAQ:ZNGA): There were only three hedge funds with Zynga shares at the end of December. However, hedge funds flocked into Zynga during the first quarter as the stock climbed to $15 from its IPO price of $10 in mid-December. By the end of March there were 24 hedge funds, with a total investment of $234 million in Zynga. Unfortunately, the stock lost more than 50% since the end of the first quarter. Christopher Medlock James, Ken Griffin, and Anand Parekh's hedge funds are among the losers.

4. Regions Financial (NYSE:RF): There were 24 hedge funds in Regions Financial at the end of December. That number jumped to 41 by the end of March. Regions Financial sold its brokerage and investment banking subsidiary, Morgan Keegan, for a total of $1.2 billion, including the $250 million dividend received. The proceeds were used in the repayment of Regions Financial's $3.4 billion TARP obligation. Hedge funds probably predicted that these transactions would act as a catalyst and Regions Financial's stock price would react positively. They were right, as Regions Financial gained more than 50% during the first quarter. We think the opportunity to invest in Regions Financial is gone. Israel Englander, George Soros, and Jeffrey Altman initiated new positions in the stock during the first quarter and profited handsomely (see George Soros' stock picks).

5. Equinix (NASDAQ:EQIX): This is another stock with 50%-plus return during the first quarter. Philippe Laffont invested nearly $600 million in the stock during the first quarter. He presented his investment thesis in Equinix at the Ira Sohn Conference. He said Equinix could reach $500 over the next few years. Currently, the stock trades around $160. Laffont isn't the only hedge fund manager who became bullish about the stock recently. Billionaires Jim Simons and Thomas Steyer also initiated new positions in this stock.

Source: 5 Stocks Hedge Funds Are Buying Like Crazy