The looming possibility of a recession sent the S&P 500 and Nasdaq Composite spiraling into a bear market this year. Still, some billionaire fund managers bought stocks throughout the downturn.

For instance, Israel Englander of Millennium Management nearly tripled his stake in Zscaler (ZS -9.40%) in the third quarter, and his position has increased more than tenfold since the beginning of the year. Similarly, Steve Cohen of Point72 Asset Management nearly tripled his position in Elastic (ESTC -12.55%) since the first quarter.

Here's what investors should know about these growth stocks.

1. Zscaler: Cybersecurity

Zscaler is a leader in network security. Its platform, known as a security service edge (SSE), inspects network traffic and enforces zero trust policies in the cloud, eliminating the need for costly on-premise appliances. In doing so, Zscaler helps users safely access the web, cloud services, and private applications from any device or location. Its portfolio also includes solutions for cloud workload protection and digital experience monitoring.

Zscaler distinguishes itself as the largest network security cloud. It handles 250 billion requests and captures 300 trillion security signals daily, and every data point makes its artificial intelligence engine better at safeguarding sensitive data and applications. That advantage "enables Zscaler to deliver better threat protection than other vendors," according to CEO Jay Chaudhry.

Digital transformation is a powerful tailwind for many cybersecurity vendors, but Zscaler is growing especially quickly. Revenue rose 61% to $318 million in the fourth quarter of fiscal 2022 (ended July 31), and free cash flow soared 170% to $75 million. Meanwhile, remaining performance obligation -- a leading indicator of future revenue -- jumped 68% to $2.6 billion during the fourth quarter, implying strong growth ahead.

On that note, investors have several reasons to be optimistic. Research firm Gartner recently ranked Zscaler as a leader among SSE vendors, and the company held a leadership position for the past 11 years. That puts Zscaler in an ideal spot. Gartner estimates 80% of enterprises will adopt SSE platforms by 2025, up from 20% in 2021. Meanwhile, management values its addressable market at $72 billion (and growing).

Currently, shares trade at 13.9 times sales, a discount to the three-year average of 37.1 times sales. That creates an attractive buying opportunity for long-term investors.

2. Elastic: Data analytics

Elastic specializes in data analytics. Its platform (known as the Elastic Stack) allows businesses to ingest, store, and analyze IT data, and it leans on artificial intelligence to detect anomalies, identify issues, and streamline root cause analysis. The Elastic Stack powers three product suites: Enterprise Search, Observability, and Security.

Enterprise search is a workplace search engine allowing users to locate documents and data across corporate systems; it also brings search functionality to websites and mobile apps. Observability is a performance monitoring solution that keeps applications, networks, and infrastructure running smoothly. And Security is a suite of tools that help organizations prevent, detect, and respond to cybersecurity attacks.

According to DB-engines, Elastic is the most popular workplace search engine, topping second-place Splunk by a wide margin. That advantage allowed the company to execute a reasonably successful land-and-expand growth strategy. In the first quarter of fiscal 2023 (ended July 31), Elastic increased its customer base by 21% to 19,300. It also reported a net expansion rate of "just under 130%," meaning the average customer spent almost 30% more over the past year.

Unfortunately, that led to mixed financial results. Third-quarter revenue climbed 30% to $250 billion, but operating expenses grew more quickly. The company reported a non-generally accepted accounting principles (GAAP) loss of $0.15 per diluted share, down from a profit of $0.04 per diluted share in the prior year.

On the bright side, Elastic is investing in product development. It recently added cloud workload protection and cloud security posture management solutions to its Security suite and debuted new monitoring tools for its Observability suite. Shareholders should be cautiously optimistic about those efforts. Elastic valued its addressable market at $78 billion in 2021, and each new product gives the company a better shot at capitalizing on that opportunity.

That said, the company faces tough competition from cybersecurity software specialists like CrowdStrike and observability software specialists like Datadog. Elastic may be able to carve out a niche in those markets, but I would hold off on buying this stock until there is more evidence the company can generate and grow cash flow consistently.