GRX is down over 6% as its Rights Offering goes ex-rights today. Shareholders as of yesterday would be entitled to 1 right for every 3 shares of GRX owned. This is why GRX was up yesterday in a very weak market but is down today. Buying GRX today means you don't get the subscription rights. The subscription price is $9 which is a pretty sizeable discount to yesterday's closing price of $10.43, which was also on its ex-dividend date.
At a $9.80 market price currently, trading without the rights, I believe this drop is overdone. Considering GRX has an NAV of $11.28 and this rights offering will bring down the NAV only a few percent according to my calculations, that is still an extremely wide market price discount. Obviously, for existing shareholders who don't want additional shares, you could sell 1/3 of your position in GRX today and retain the rights to buy at $9, hence why the stock is down so much.
Now if you don't own GRX, this might be a good time to step up to the plate and buy one of the best performing funds around. GRX is a very small fund with only 11.2 million shares outstanding so obviously Gabelli wants to increase the fund's size and investment capability. GRX is a leveraged healthcare & wellness stock CEF (no bonds) which has the BEST NAV performance of any CEF I follow, up 20.2% on its NAV YTD and up 47.9% since 2012. GRX will also yield about 4.1% if this drop holds but GRX is much more about appreciation than yield.
Gabelli has one of the best fundamental research teams around and that is reflected in many of their leveraged stock CEFs like GAB trading at a 7.3% premium, GUT trading at an 11.6% premium and GGT at a 1.7% premium. With GRX at a sizeable discount and better NAV performance than any of them, I believe GRX is severely undervalued.
Disclosure: I am long GRX.