Navigating the 2025 Tax Landscape: Turtle Creek's Strategic Shift Toward Industrial and Consumer Sectors

The Federal Tax Cut and Jobs Act of 2025—informally dubbed the “One Big Beautiful Bill Act” (OBBBA)—has rewritten the rules of the game for U.S. investors. By prioritizing capital-intensive industries like manufacturing, defense, and fossil fuels while scaling back incentives for clean energy and healthcare, the law has created a stark divide between short-term tax advantages and long-term innovation. For Turtle Creek Asset Management, this shift has been a clarion call to deepen its focus on industrial and consumer sectors, where its long-held, high-conviction positions align with the tax code's newfound biases.

The Tax Code's New Priorities

The OBBBA's most impactful provision is the reinstatement of 100% expensing for qualified assets, a policy that allows businesses to deduct the full cost of capital expenditures in the year they're made. This directly benefits industries reliant on heavy infrastructure, such as Celanese Corporation (CE) and The Middleby Corporation (MIDD), two of Turtle Creek's top holdings. For example, Celanese, a chemical and materials manufacturer, can now accelerate deductions for plant upgrades, improving near-term cash flow. Similarly, Middleby, a foodservice equipment producer, gains flexibility to invest in R&D and manufacturing capacity without immediate tax drag.

The law also permanently extends the EBITDA-based calculation for business interest deductions, a lifeline for debt-heavy firms. This provision disproportionately favors industrial players like BorgWarner Inc. (BWA), a supplier of automotive components, and CarMax, Inc. (KMX), Turtle Creek's fourth-largest holding. These companies can now deduct interest expenses based on a broader earnings metric, effectively lowering their tax burden and boosting profitability.

Conversely, the OBBBA's cuts to clean energy tax credits and Medicaid spending have created headwinds for healthcare and renewable energy sectors. While this might seem like a setback, it has indirectly elevated the relative appeal of industrial and consumer stocks, which now enjoy a more favorable tax environment.

Turtle Creek's Strategic Alignment

Turtle Creek's Q1 2025 portfolio, valued at $3.56 billion, reflects a deliberate tilt toward these tax-favored sectors. The firm's top four holdings—Celanese (7.19%), Middleby (6.26%), ATS Corp (5.82%), and CarMax (5.70%)—are all industrial or consumer discretionary plays. This concentration is no accident. By avoiding tech volatility, Turtle Creek sidesteps the regulatory and geopolitical risks that have plagued software and semiconductor firms in 2025.

The firm's approach is rooted in a philosophy of “Business Value”—a metric derived from discounted cash flow models that prioritize durable earnings and strong management. Industrial and consumer companies, with their tangible assets and predictable cash flows, fit this framework perfectly. For instance, CarMax's used car retail business thrives on stable consumer demand, while Celanese's chemical operations benefit from long-term supply chain needs.

The Case for Caution: Tech's Role in the New Regime

While Turtle Creek's strategy is well-positioned for the current tax climate, the absence of tech exposure raises questions. The OBBBA's cuts to R&D incentives and clean energy credits could stifle innovation, but history shows that regulatory headwinds often create buying opportunities. A comparing the performance of tech giants like NVIDIA (NVDA) and Microsoft (MSFT) against Turtle Creek's top industrial holdings reveals a mixed picture: while tech stocks have underperformed industrials in 2025, their long-term growth potential remains intact.

Investors must weigh Turtle Creek's defensive positioning against the risk of missing out on a tech rebound. However, the firm's 0% turnover rate in Q1 2025 underscores its commitment to long-term value over speculative bets. This discipline aligns with the tax code's emphasis on capital preservation, particularly in an era of geopolitical uncertainty and inflation.

Investment Implications

For investors, Turtle Creek's strategy offers a blueprint for navigating the OBBBA's complexities:
1. Double Down on Tax-Favored Sectors: Industrial and consumer stocks like CarMax and Celanese are likely to benefit from the tax code's emphasis on capital expenditures and EBITDA-based deductions.
2. Avoid Tech Overexposure: While tech's long-term prospects remain strong, the sector's volatility and regulatory risks make it a less attractive play in the current environment.
3. Diversify Within Industrial/Consumer: Turtle Creek's portfolio includes a mix of manufacturing, automotive retail, and consumer services, reducing sector-specific risks.

Conclusion

Turtle Creek's Q1 2025 portfolio is a masterclass in adapting to regulatory shifts. By leveraging the OBBBA's tax incentives for industrial and consumer sectors, the firm has positioned itself to capitalize on near-term gains while avoiding the turbulence of tech markets. However, investors should remain vigilant: tax policies are subject to change, and a pivot toward innovation could reshape the landscape in 2026. For now, Turtle Creek's disciplined, value-driven approach offers a compelling case for those seeking stability in an unpredictable world.