Sell This Lithium Stock, J.P. Morgan Says. Shares Could Fall 50%.

A worker uses a shovel to move the raw material for the manufacture of lithium carbonate at a plant in Bolivia in 2022. (Gaston Brito Miserocchi/Getty Images)

Key Points

• J.P. Morgan downgraded Lithium Americas to Sell from Hold, setting a $5 price target, implying nearly 50% downside from Wednesday’s closing price.
• The downgrade follows a nearly 200% rally in Lithium Americas’ stock over the past month, driven by China’s threatened export restrictions on rare-earth minerals.
• Only 13% of analysts rate Lithium Americas as a Buy, significantly lower than the S&P 500 average of approximately 55%.

Sometimes, it’s time to take profits in hot stocks. And that’s what J.P. Morgan is recommending with Lithium Americas: Unload it.

On Thursday, J.P. Morgan analyst Bill Peterson downgraded shares of the lithium miner to Sell from Hold. His price target is $5; the stock’s Wednesday closing price stood at $9.44, so his implies almost 50% downside.

Shares closed at $7.39, down 21.8%, while the S&P 500 and Dow Jones Industrial Average dropped 0.6% and 0.7%, respectively.

The stock had rallied almost 200% over the month through Wednesday’s close. Shares took off because China threatened export restrictions on rare-earth minerals and lithium-ion batteries as trade tensions with the U.S. ratcheted higher.

China dominates rare-earth minerals, which are used in a variety of goods—from electric vehicles to fighter jets—and lithium-ion battery production. The federal government took a stake in Lithium Americas days ago, sending shares higher.

Lithium Americas doesn’t generate significant sales yet. It’s developing the Thacker Pass lithium project in Nevada.

The government’s investment isn’t enough to justify valuing shares at a higher multiple, wrote Peterson. That and the 200% rally are the main reasons for the downgrade.

Overall, 13% of analysts covering the stock rate it at Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. Including J.P. Morgan’s call, 23% of analysts covering Lithium Americas rate it at Sell. The average Sell-rating ratio for S&P 500 stocks is closer to 10%.

The average analyst price target for Lithium Americas stock is about $6. Wall Street has had trouble keeping up.

Write to Al Root at allen.root@dowjones.com