United are set to splash the cash this summer and Sherwood, who managed Grealish in 2015, feels that the midfielder, along with two other additions, could help bring the title back to Manchester.
"I look at that squad now and I think they're two or three players short of challenging for the title," Sherwood told Premier League productions.
"I think they need another striker, I think they need Jack Grealish, who is a brilliant player to have when teams sit back against them like Tottenham did the other evening where he can occupy the tight areas and create something.
"I think they need another centre-back as cover. If they can get that and they have the money to be able to go out and buy those sort of players to attract them to the biggest club in the world then I think they'll be real challengers."
Villa are understood to value their 24-year-old skipper, who has scored nine goals and provided eight assists in all competitions this campaign, at around £80m.