What happened

Shares of General Electric (NYSE:GE) gained 11.6% in October, according to data provided by S&P Global Market Intelligence. The stock traded down over the first half of the month but got a jolt in October's final days after GE's third-quarter earnings report.

So what

One-time highflier General Electric has been hard hit in recent years due to a series of ill-timed acquisitions and a debt-laden balance sheet, sending shares down about 60% over the past three years. Some investors had been bracing for worse after a prominent short-seller called GE "a bigger fraud than Enron" earlier this year, warning of potentially devastating surprises lurking on the company's balance sheet.

A GE9X engine hanging off the wing of a plane in flight.

A General Electric GE9X engine in flight. Image source: General Electric.

GE, for its part, has done little to earn investor confidence, announcing a series of quarterly misses in recent years and overhauling top management twice. Its latest CEO, Larry Culp, joined in October 2018 and has shown signs of initial progress, but there was a lot riding on GE's third-quarter earnings report.

General Electric beat analyst expectations in the quarter and, perhaps more importantly, did not deliver any unwanted surprises or unexpected drama. The company's aviation and healthcare units are performing well, while its energy business is still troubled. Still, GE raised its guidance for 2020 industrial cash flow by $1 billion to breakeven to $2 billion, a positive sign given potential headwinds including a slowing global economy, trade wars, and the impact of the grounding of Boeing's 737 MAX.

The stock went into earnings trading at 10 times earnings and less than 1 times sales, with the markets seemingly pricing in further negative surprises. The better-than-expected report caused a relief rally in the shares and suggested that all is not lost for General Electric.

Now what

The quarter was a positive step, but General Electric's recovery is a long-term project that is still in its early stages. The energy business, and in particular the large European component of that business, will be difficult to streamline, and GE still faces tough questions about right-sizing other businesses and paying down debt that will only get more difficult if the U.S. falls into a recession.

CEO Culp has done good work during his first year on the job, and General Electric appears to be on an upswing. But investors would be wise to take a patient approach and watch how this turnaround plays out in the quarters to come before buying in.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.