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As the rally fizzles, defensive stocks are returning to the spotlight, especially health care. Here's a small-cap medical supply distributor poised to gain.

TheStreet.com Ratings

Owens & Minor ( OMI) has carved a niche by distributing other companies' medical products, everything from scrubs to scalpels. The company serves major players like Cardinal Health ( CAH) and Covidien ( COV), and sells its own discount line of common medical products under the brand MediChoice. In August, the company acquired Burrows Co., a Chicago-based medical supplier, for $30.2 million to expand its reach.

Aging baby boomers will boost demand for health care supplies for years to come, increasing revenue for medical suppliers and manufacturers. In the past month, the Dow Jones U.S. Health Care Index, which includes Abbott Laboratories ( ABT), Amgen ( AMGN) and Johnson & Johnson ( JNJ), climbed 2% as the Dow Jones Industrial Average lost 6.1%.

First-quarter revenue at the Richmond, Va.-based company rose 13% to $1.9 billion. Net income dropped 42% to $14 million because of the cost of divesting a direct-to-consumer diabetes-supply business. Earnings per share from continuing operations fell 8.5% to 54 cents.

The company's operating margin has shed 46 basis points to a slim 2% since the year-earlier quarter as the net margin shrank by half to 0.7%.

Owens & Minor's strong balance sheet compensates for its weak profitability. The company has quadrupled its cash position to $11 million since last year's first quarter. A debt-to-equity ratio of 0.31 reflects its conservative approach.

We rate the company "buy" with a financial strength score of 7.9 out of 10, better than the 7 average of our "buy"-rated stocks.

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