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In the fiercely competitive auto insurance business, the small operator appears doomed to extinction. But so far, tiny Automobile Protection Co. (APCO) is alive and thriving. In fact, earnings rocketed 121% and revenues zoomed 58% in 1995's fourth quarter. For all of last year, APCO's profits jumped 44%, to $1.5 million, or 20 cents a share; revenues climbed 65%, to $49.2 million. APCO's stock, which traded at around 2 1/2 in mid-December, has climbed to 3 1/4.

What's firing up APCO? The low-cost packager of insurance to auto dealers nationwide has a growing core business, EasyCare. It offers extended-service warranties, a business dominated by the Big Three auto makers. APCO's credibility was bolstered when Honda Motor signed a five-year contract to provide extended warranty service to Honda and Acura dealers in the U.S.

Herbert Davidson, an analyst at Meyer Pollock Robbins in McLean, Va., says the stock should rise anywhere from 6 to 8 a share in a year. APCO's tiny size, he adds, led by an aggressive management that's fast to respond to dealers' warranty needs, has enabled it to carve a comfortable niche in the $5 billion warranty business.BY GENE G. MARCIAL

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