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Lithium Americas (LAC) fell nearly 21% today after J.P. Morgan analyst Bill Peterson downgraded the stock from “Hold” to “Underweight”. His view is that the stock outran its fundamentals, even after accounting for the government’s investment in Lithium Americas.

In fact, the analyst gave LAC a price target of just $5. It’s a 33% discount to the current price, even after the 22% decline today. However, it’s still ahead of the $3.3 price LAC stock traded at before the government announced it was taking a 5% stake in the company, plus a separate 5% stake in its Thacker Pass lithium project.

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Buy or sell LAC stock now?

More analysts are becoming pessimistic after the JPM downgrade, and it’s likely that the stock could move to the $5 range if more analysts cluster their price targets around it. However, I see it as a floor price, with the upside potential well beyond $10 in the long run.

The government stake in Lithium Americas is not large and not game-changing yet, but it can be expanded later. Thacker Pass has one of the largest lithium deposits globally and can support operations for at least 40 years. The government has had an interest in Lithium Americas for years, with the first multi-billion-dollar commitment in 2024. More investment is likely if the aim of this administration is to secure domestic lithium self-sufficiency.

More interest rate cuts this year would also lead to more interest in electric vehicles and related investments like LAC.

I’d buy the dip and wait for the price target downgrades to fade out of the headlines. LAC stock can recover strongly long term and revisit $10 by year-end.

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