It’s no secret that companies with ties to the homebuilding sector have been performing well, though you wouldn’t know it from the way Street analysts are treating them.

Weyerhaeuser (NYSE:WY) took its turn at the earnings podium Friday morning. The timber company reported third-quarter earnings of 22 cents per share, beating estimates by 4 cents. Despite a jump in revenue of 12.9% on a year-over-year basis, the company’s $1.77 billion just missed top-line expectations by $3 million.

Margins for Weyerhaeuser are widening as the housing industry continues to show signs of improvement — one of the reasons WY shares traded higher after the tepid earnings results. But according to our indicators, there’s another reason for the upward movement.

We love to find stocks for which the Street has lowered expectations, as even a tepid earnings report still has the potential to get The Street in a buying mood. This currently is the case with WY and other housing stocks. Investors hated these stocks a year ago as the housing industry had hit bottom. Now, it’s only a matter of time before the crowd starts to migrate back to these stocks, meaning now is the time to pounce.

Currently, 35% of the analysts covering WY have it ranked a buy, with a respective 41% and 24% rating it a hold. Let’s put that into perspective: General Electric’s (NYSE:GE) current analyst ratings show 75% buys and 25% holds (so no sells). That’s on a stock that has returned 18%, compared to WY’s return of 47% for the year.

Are you kidding me? WY is the definition of underappreciated.

Similarly, short interest shows us that the short sellers are betting against WY. Just ahead of the latest earnings announcement, the short-interest ratio on WY shares moved from 2.5 to 3.0. The move itself isn’t monumental, but it represents another group of traders that were increasing their bets against the stock ahead of earnings. These and other investors now had the weekend to digest the earnings results, and likely will start buying WY shares this week.

Activity in the options pits is slightly different, as we’ve seen options traders taking out some bullish bets in the November call options, specifically at the 29 strike. This is one of the few signs of optimism on WY, and could translate into money coming into the stock if the trend continues (which we like, of course).

Now, all of the negative sentiment that we’ve described here becomes more of a contrarian indicator for WY shares when you compare it against WY’s chart.

Ahead of earnings, WY declined from its highs near $29 to its current levels. The short pullback relaxed a technically overbought signal from the Relative Strength Index. This helps the short-term bullish argument. In addition to relieving the overbought signal, Weyerhaeuser stock just received support from its 20-day moving average. To put that into perspective, less than 20% of the S&P 500 companies are trading above their respective 20-day MAs.

Furthermore, WY shares are still trading above potential technical support from their 50-day moving average, currently at $26.16.

Bottom Line: The sentiment picture for WY paints an image of the proverbial “wall of worry” that the stock should continue to climb into 2013. We expect that continued improvements in the housing sector will demand the crowd’s attention and spark a migration of cash into WY and other companies in the group.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.