Star gazing: our six stock market show-stoppers

SHARE TIPS 2005: 'IoS' business writers make their recommendations for the companies to watch this year

ITV

ITV

Ignore the programmes, look at the prospects. The City has not been a fan of ITV since it was created by the merger of Carlton Comm- unications and Granada. The shares have fallen nearly a third to end on Friday at 105.25p, leaving one of the world's pre-eminent broadcasters with a market value of just over £4bn.

But while the uninspiring programmes on ITV1, and the poor audience figures, might cause worries about short-term figures, the long- term prospects look excellent. The cost cutting since the merger will help margins, and getting rid of non-core assets will make the balance sheet look healthy. However, the biggest positive comes from regulation - with ITV likely to secure further cuts in the amount it pays the government for its licences, and hints from the regulator, Ofcom, that there could be an easing in the regime that restricts how much ITV can charge advertisers. It's a case of "never mind the quality, feel the value" with ITV.

Vanco

There are plenty of reasons for stock pickers to avoid tele- communications. Wholesale telecoms prices are sliding; voice over broadband is taking off, putting pressure on retail prices; and there are huge uncertainties due to Ofcom's regulatory review.

But it is for these reasons that Vanco is worth a look. Valued at £145m, it offers telecoms services to companies such as Ford, Siemens and Lloyds TSB. And, unlike most telecoms firms, Vanco doesn't own any cables or telecoms masts. Instead, it leases capacity from other companies and sells it on to customers with extra services on top. So, while the likes of Cable & Wireless will continue to suffer from the slide in wholesale prices, Vanco will enjoy fatter margins.

Analysts also reckon that it is well placed to take advantage of voice over broadband. And the Ofcom review will open up the market to more competition, offering richer pickings for Vanco. At 268p it could be worth a punt.

Wm Morrison

Since buying Safeway 18 months ago, the supermarket group has been propelled into the big league. But the integration process has not gone smoothly, with costs higher than forecast and shoppers deserting non-converted Safeway stores. The chain issued its first profit warning in 37 years as a public company and the shares suffered, finishing 2004 at 207p.

Yet 2005 could be the year it turns the corner. Prior to the deal, Morrisons regularly reported solid growth and strong results, and no one disputes its long-term ability to integrate Safeway and take its place among the supermarket giants. And, despite his sometime offhand attitude towards the City, 73-year-old boss Sir Ken Morrison is highly rated.

The question is when the turnaround will get under way; it could take longer than 12 months, so this tip has its risks. But the first signs of improvement should see investors charge, and buying now could be an opportunity to get in ahead of the crowd - at a bargain price that Sir Ken himself would approve of.

Telecom Plus

We've had our eye on this company for some time. Twice a finalist in the Indy 100 - The Independent on Sunday's competition for fast-growing firms - its strategy of offering cut-price domestic gas, electricity and phone calls has impressed.

The problem is that we weren't alone in spotting its potential and it has built a decent following in the City and maintained a healthy rating.

But a hiccup last month took the wind out of its sails. The company, with a market capitalisation of £136m, warned that it would suffer a £4m loss as a result of rising gas prices. The shares fell sharply and have yet to recover from the current 222.5p.

But there shouldn't be any more shocks for its share price and, with rivals raising their tariffs, Telecom Plus's promise of low-cost utilities should win plenty more customers in 2005.

Pearson

Education, education, education, they say. Dame Marjorie Scardino, chief executive of Pearson, would certainly agree.

Last year the company made almost two-thirds of its profits from selling textbooks to US schools, and by providing educational tests.

But because it also owns the Financial Times and Penguin, it is lumped into the "media and entertainment" index of the FTSE. Pearson underperformed both this index and the FTSE All-Share in 2004.

But there are reasons to be optimistic about 2005, and its shares look good value at 628.5p. This year, US states have more money to spend on textbooks after a couple of bleak years, and things should also pick up at Penguin as it is close to fixing its distribution problems at its new warehouse in Rugby. In a Novem- ber trading statement, Pearson also said the loss-making FT could break even in the fourth quarter. Whether it can build on this in 2005 isn't clear as the advertising outlook is uncertain. But Pearson is less dependent on ad revenues than most of its media counterparts, so don't be put off.

Hill & Smith

After the poor performance of his tips last year and the year before, Jonas Nissé, son of the business editor, has been replaced as our "naive investor" by his younger brother, Albert. Albie, as he prefers to be called, would like to point out that he cannot be held responsible for his brother's recommendations as he is only six months old and wasn't born at the time.

Albie's method was to grab the FT prices page and try to ram it into his mouth. The page was then rescued by his father, who determined where Albie's mouth had been for the recommendation.

This was the engineering sector and, in particular, Hill & Smith. The company makes products for the building industry and infrastructure projects, with one of its most successful lines being temporary crash barriers that protect rail workers.

It is not well followed in the City but this does not mean it is not popular. Its shares have more than doubled in the past two years to 120p at Friday's market close.

This is Albie's chance to outdo his big brother.