Jim Cramer's Stop Trading! KB and the Sunshine Band

A solid quarter at KB Home (KBH Quote) shows how bearish coverage of the homebuilding sector has spun out of control, Jim Cramer said Tuesday on CNBC's "Stop Trading!" segment.

Cramer noted that the average price of a house sold by KB rose 4% from a year ago in the latest quarter and that revenue rose over all as well. Cramer said these underlying fundamentals show that the Los Angeles-based homebuilder is ripe for a takeover.

But people "are so busy burying this company," Cramer lamented, that the strength of KB's position is being ignored, Tuesday's 4% rise in the stock notwithstanding.

Cramer said chatter of a bid for Alcoa (AA Quote) makes sense because the last year or two has shown that "undermanaged companies" in the metals sector have gotten takeout deals. Cramer said he expects Rio Tinto (RTP Quote) to buy the Pittsburgh-based aluminum smelter, whose shares were up 6% Tuesday.

Cramer also lamented a $7 billion buyback plan at 3M (MMM Quote), saying management should "fix the company first."