Earthquakes are bad news, especially for insurers who sell policies against them. Yet the stock of Gryphon Holdings (GRYP), a property-and-casualty insurer specializing in quakes, hasn't cratered. In fact, it's on the rise--despite a pretax loss of $11.5 million resulting from a California earthquake.

''No doubt about it: Management is concerned about pressure from the Street to get earnings up,'' says investment manager Jim Awad. Unless it turns the numbers around, he adds, Gryphon will be ''easy prey for raiders.''

With the stock at 15--equal to its book value--and the company underperforming, ''it's a matter of time before somebody comes in and buys Gryphon. It's worth 50% to 75% more than the current price,'' says Awad.

A number of investors smell a bargain in Gryphon, causing the stock's runup--from 10 a share to 15 since late April--notes Awad, who heads Awad & Associates Asset Management, a unit of Raymond James Financial. ''Gryphon's peers trade at more than 1.5 times book value,'' says Awad.

Gryphon President Stephen Crane acknowledges that unless the company ''produces value to shareholders, we'll be vulnerable'' to a buyout raid. But he's confident that ''we'll produce higher results this year.'' Crane says the disappointments of 1996 are behind the company: It is positioned for improved profitability in 1997. About 24.5% of Gryphon's gross premiums comes from commercial earthquake-insurance policies in California.