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How to trade the water scarcity situation

Seventy percent of Earth is water but only 3 percent of that is drinkable fresh water. Two-thirds of that fresh water is trapped in glaciers.

If you think that looks bleak for the future of water on our planet, you're not alone.

Water faucet tap
pixhook | E+ | Getty Images

A recent Government Accounting Office study showed that by 2025, 40 out of 50 U.S. states will have water scarcity issues.

For this reason, Deane Dray of RBC Capital Markets said it's important to invest in "smart water" companies. These businesses utilize a higher degree of water technology such as desalination, filtration, water reuse and test/analytics.

However, eager investors are faced with a dilemma.

"There aren't a lot of pure plays," Dray told CNBC. So there's a disconnect between the interest in investing in water and the actual companies to be able to invest in."

Many businesses that deal in water are simply divisions of multi-industry companies, Dray said on Friday's "Power Lunch."

But, "if you go hunting in the right places and move up the technology scale, there are ways to invest in water," Dray added.

Dray listed Xylem, Danaher, Roper and Pentair as his top picks for investing in water-related stocks.