Hamilton endured a torrid campaign as he was involved in a number of on-track incidents, while he suffered personal heartbreak off it by splitting from long-term girlfriend Nicole Scherzinger.
Come the conclusion, Hamilton finished second to a team-mate for the first time in his single-seater racing career, trailing Jenson Button by 43 points.
Renowned British driver Watson, who started 152 races for Brabham, Surtees, Lotus, Penske and McLaren from 1973-85, has no doubts the 27-year-old can add to the title he won in 2008 - providing all is well behind the scenes.
"I was thinking about Lewis recently and wondering why it was not his year, or at least not a better year for him last year," Watson told Press Association Sport.
"Lewis has had a lot happen in a very short space of time. Having had so much success so early may not have been the best thing for a young driver.
"Last year he was up against a very strong, mature driver in Jenson, who is completely comfortable within himself. Everything in his life looks stable.
"He was able to very successfully manoeuvre the team around to working with him, giving them the kind of clear definitive feedback a team needs.
"As for Lewis, whether his mind was distracted, I don't know, but there was something that occurred that hasn't been fully explained.
"But Lewis is a grand prix winner, a world champion, and the most exciting Formula One driver now.
"He will wring the neck out of his McLaren to achieve his goals.
"He needs to maybe...I don't know if it's regroup, or to check and counterbalance things to keep him directed on the job he needs to be doing.
"But one thing is for sure, I would never write off Lewis, and given an opportunity in a car in which he can win, then he is going to be a major challenger for the championship."
Watson, who enjoyed four of his five grands prix wins with McLaren, is convinced the philosophy within the team has never changed since the days towards the end of his career when Ron Dennis took charge.
"They've probably the strongest driver line-up of anybody, with both men former world champions, and both can win again," added Watson.
"With the resource McLaren have, they are able to react quickly and remedy areas where they are not satisfied. Never underestimate what they can do at Woking.
"Their aspirations to win more world titles is no different to the early days when Ron Dennis came in in 1981.
"The dreams and the manner Ron went about establishing McLaren as the force it is today, I believe still exists, even though it is no longer led by Ron.
"But the fire within the team is still burning as strongly as it was in 1981."