Rangers have caused a stir with their January signings.
Davis, 34, has rejoined Rangers almost seven years after leaving the club on loan until the end of the season from Southampton, while Jermain Defoe has put pen to paper on an 18-month loan from AFC Bournemouth.
With the Scottish Premiership set to restart next week, fans have been discussing who are favourites to win the league in Scotland with Celtic top but Rangers on level points - only a game in hand separating the two sides.
Former Celtic striker McDonald believes his old side are still favourites to win the league and make it eight titles in a row, despite the signings of veterans Davis and Defoe.
“You have to look at the experience Rangers have brought in and say, who is going to hit the ground running and it would be Rangers, wouldn’t it?" McDonald said.
“Steven Davis has been here and done it before. He is an exceptional footballer, probably underrated in a lot of aspects and obviously Jermain Defoe coming in and adding that quality in front of goal.
“I do still make Celtic favourites because they have been there and done it in previous seasons. They have a game in hand, they are still in control. The only argument you can have with that is how they deal with the pressure if Rangers hold on and go neck and neck with them."
Rangers pushed themselves into a title race with a superb 1-0 win over Celtic at Ibrox last time out, thanks to Ryan Jack's goal which deflected into the net past Craig Gordon off of captain Scott Brown.
The Gers are next in action against Cowdenbeath on Friday in the fourth round of the Scottish Cup, before taking on Alfredo Morelos' former side HJK Helsinki in a mid-season friendly on Saturday.